<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File No. 1-8491
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HECLA MINING COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0126240
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83815-8788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 208-769-4100
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is registered
- ---------------------------------------------- ------------------------------
Common Stock, par value $0.25 per share )
Preferred Share Purchase Rights for )
Series B Cumulative Convertible Preferred) New York Stock Exchange
Stock, par value $0.25 per share ) -----------------------
- ----------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes XX . No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the Registrant's voting Common Stock held by
nonaffiliates was $99,866,762 as of March 15, 2000. There were 66,782,464
shares of the Registrant's Common Stock outstanding as of March 15, 2000.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III, the information
contained in the Proxy Statement for the 2000 Annual Meeting of Shareholders of
the Registrant, which will be filed with the Com-mission pursuant to Regulation
14A within 120 days of the end of the Registrant's 1999 fiscal year is
incorporated herein by reference. See Part III.
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Part I
Item 1. Business.
General
Hecla Mining Company (Hecla), originally incorporated in 1891, is
principally engaged in the exploration, development and mining of precious and
nonferrous metals, including gold, silver, lead and zinc, and certain industrial
minerals. Hecla owns or has interests in a number of precious and nonferrous
metals properties and industrial minerals businesses. In 1999, Hecla's
attributable gold and silver production was approximately 110,000 ounces and 7.6
million ounces, respectively. Hecla also shipped approximately 1,154,000 tons
of industrial minerals products during 1999, including ball clay, kaolin,
feldspar and specialty aggregates. Additionally, Hecla shipped approximately
1,091,000 cubic yards of landscape material from its MWCA subsidiary in 1999.
The principal executive offices of Hecla are located at 6500 Mineral Drive,
Coeur d'Alene, Idaho 83815-8788, telephone (208) 769-4100.
Statements made which are not historical facts, such as anticipated
production, costs or sales performance, are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, and involve
a number of risks and uncertainties that could cause actual results to differ
materially from those projected, anticipated or implied. These risks and
uncertainties include, but are not limited to, metals price volatility,
volatility of metals production, industrial minerals market conditions and
project development risks. (See Investment Considerations). Hecla does not
undertake to update any forward-looking statements.
Hecla's principal producing metals properties include the Lucky Friday
silver mine, located near Mullan, Idaho, which is a significant primary producer
of silver in North America; the Greens Creek silver mine, located near Juneau,
Alaska, a large polymetallic mine in which Hecla owns a 29.73% interest; the
Rosebud gold mine, located near Winnemucca, Nevada, in which Hecla owns a 50%
interest, and where operations began in March 1997; the La Choya gold mine,
located in Sonora, Mexico, where mining was completed in December 1998; and the
La Camorra mine, located in the State of Bolivar, Venezuela, which Hecla
acquired in June 1999 and where operations recommenced in October 1999.
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1 For definitions of certain mining terms used in this description, see
"Glossary of Certain Mining Terms" at the end of Item 1, of this Form 10-K, page
38.
<PAGE> 3
The following table presents certain information regarding Hecla's metal
mining and development properties, including the relative percentage each
contributed to Hecla's 1999 revenues:
Date Ownership Percentage of
Name of Property Acquired Interest 1999 Revenue(1)
- ---------------- -------- --------- ------------
Greens Creek 1988 29.73% 14.8%
Lucky Friday 1958 100.0% 14.7%
Rosebud 1994 50.0% 9.6%
La Camorra 1999 100.0% 2.6%
La Choya 1991 100.0% 2.0%
- ------------------
(1) In addition to the percentage contributions of revenue from the metal
mines, the industrial minerals segment contributed 55.0% of revenue in 1999
and hedging activities contributed 1.3%.
In 1999, Hecla's industrial minerals segment consisted of Kentucky-
Tennessee Clay Company (ball clay and kaolin divisions), K-T Feldspar
Corporation, K-T Clay de Mexico, S.A. de C.V. and MWCA, Inc. MWCA operated two
divisions: the Colorado Aggregate division and the Mountain West Products
division. Hecla's industrial minerals segment is a significant producer of
three of the four basic ingredients required to manufacture ceramic and
porcelain products, including sanitaryware, pottery, dinnerware, electric
insulators and tile. At current production rates, Hecla has over 20 years of
Proven and Probable ore reserves of ball clay, kaolin and feldspar.
Hecla has experienced net losses for each of the last nine years. For the
year ended December 31, 1999, Hecla reported a net loss of approximately $40.0
million (before preferred stock dividends of $8.1 million), or $0.64 per share
of common stock, compared to a net loss of approximately $0.3 million (before
preferred stock dividends of $8.1 million), or $0.01 per share of common stock,
for the year ended December 31, 1998. The 1999 increased net loss was due to a
variety of factors, the most significant of which were 1999 adjustments totaling
$32.3 million. The 1999 adjustments included $27.6 million for future
environmental and reclamation expenditures, principally at the Grouse Creek
property and the Bunker Hill Superfund site, and asset writedowns of $4.7
million.
Hecla's strategy is to focus its efforts and resources on expanding its
gold and silver reserves and industrial minerals operations through both
acquisition and exploration efforts. In order to provide funds for possible
metals and other industrial minerals expansion, as well as to reduce
indebtedness, Hecla decided to sell MWCA. Based on the estimated sales price
for the two divisions of MWCA, Hecla recorded an adjustment in 1999 totaling
$4.4 million to write down the book value of MWCA in
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excess of the anticipated sales price. Hecla completed a sales transaction for
the Mountain West Products division of MWCA in March 2000. The Colorado
Aggregate division is expected to close later in 2000, although there can be no
assurance that the sales transaction will be completed.
Hecla's domestic exploration plan for 2000 consists primarily of exploring
for additional reserves at, or in the vicinity of, its domestic owned
properties. Hecla's foreign exploration plan for 2000 will focus on exploration
targets in Mexico and South America. At the same time, Hecla intends to
continue to evaluate acquisition and other exploration opportunities.
Hecla's revenues and profitability are strongly influenced by global prices
of silver, gold, lead and zinc. Metals prices fluctuate widely and are affected
by numerous factors beyond Hecla's control, including inflation and worldwide
forces of supply and demand. The aggregate effect of these factors on Hecla
cannot be accurately predicted.
Sales of metal concentrates and metal products are made principally to
custom smelters and metal traders. Industrial minerals are sold principally to
domestic, Mexican, and other foreign manufacturers and wholesalers. The
percentage of revenue contributed by each class of product is reflected in the
following table:
Years
-------------------------
Product 1999 1998 1997
----------------- ---- ---- ----
Gold 15.8% 21.2% 34.9%
Silver, lead and zinc 29.2 26.0 19.7
Industrial minerals 45.6 44.4 38.4
All others(1) 9.4 8.4 7.0
(1) All others include sales from MWCA-Mountain West Products
division exclusive of scoria sales.
For information with respect to export sales, refer to Note 11 of Notes to
Consolidated Financial Statements forming part of Hecla's audited Consolidated
Financial Statements for the year ended December 31, 1999.
<PAGE> 5
The table below summarizes Hecla's production and average cash operating
cost, average total cash cost and average total production cost per ounce for
gold and silver for each period indicated:
Years
----------------------------------
Products 1999 1998 1997
-------- -------- -------- --------
Gold (ounces)(1) 110,110 127,433 174,164
Silver (ounces)(2) 7,617,362 7,244,657 5,147,009
Lead (tons)(2) 35,195 34,455 24,995
Zinc (tons)(2) 23,299 20,155 16,830
Average cost per ounce of gold produced:
Cash operating cost $ 195 $ 177 $ 166
Total cash cost $ 205 $ 189 $ 173
Total production cost $ 298 $ 262 $ 239
Average cost per ounce of silver produced:
Cash operating cost $ 3.72 $ 3.96 $ 3.58
Total cash cost $ 3.72 $ 3.96 $ 3.58
Total production cost $ 5.25 $ 5.37 $ 5.42
Industrial minerals
(tons shipped) 1,192,281 1,114,987 1,025,993
(1) The decrease in gold production from 1998 to 1999 was principally due
to decreased production at La Choya of 28,108 ounces resulting from
completion of mining activities in December 1998 and decreased
production at Rosebud of 9,167 ounces. These decreases were partly
offset by production of 17,340 gold ounces at the La Camorra mine
acquired by Hecla in June 1999. The decrease in gold production from
1997 to 1998 was principally due to decreased production at La Choya of
38,205 ounces due to completion of mining activities in December 1998
and decreased production at Grouse Creek of 27,158 ounces due to the
suspension of operations in April 1997. These decreases were partially
offset by increased production at Rosebud of 18,522 ounces due to
operating a full year in 1998 versus nine months in 1997.
(2) The increases in silver, lead and zinc production from 1998 to 1999
were principally due to increased tons mined from the Lucky Friday
expansion area in 1999 and increased grade and tons mined at Greens
Creek. Increased silver, lead and zinc production from 1997 to 1998
was principally due to increased production at Lucky Friday due to
increased silver grade and increased tons
<PAGE> 6
mined from the Lucky Friday expansion area in 1998 and increased
silver production at Rosebud due to increased tons mined. These
increases were partially offset by decreased silver, lead and zinc
production at Greens Creek and other idle properties.
Metals - Silver Segment
Lucky Friday Mine - Idaho
The Lucky Friday mine, a deep underground silver and lead mine, located in
northern Idaho and 100% owned by Hecla, has been a producing mine for Hecla
since 1958.
The principal ore-bearing structure at the Lucky Friday mine through 1997
was the Lucky Friday Vein, a fissure vein typical of many in the Coeur d'Alene
Mining District. The orebody is located in the Revett Formation which is known
to provide excellent host rocks for a number of orebodies in the Coeur d'Alene
District. The Lucky Friday Vein strikes northeasterly and dips steeply to the
south with an average width of six to seven feet. Its principal ore minerals
are galena and tetrahedrite with minor amounts of sphalerite and chalcopyrite.
The ore occurs as a single continuous orebody in and along the Lucky Friday
Vein. The major part of the orebody has extended from the 1200-foot level to
and below the 6020-foot level, which is currently being developed.
During 1991, Hecla discovered several mineralized structures containing
some high-grade silver ores in an area known as the Gold Hunter property about
5,000 feet northwest of the then existing Lucky Friday workings. In an
extensive exploration program in 1992, Hecla undertook an underground evaluation
of the Gold Hunter property mineralization. The program referred to now as the
Lucky Friday expansion project, discovered mineralization containing significant
amounts of silver and lead in an area accessible from the 4050-foot level of the
Lucky Friday mine. The exploration program and a preliminary feasibility study
were completed during 1993. In 1994, Hecla approved the first phase of
development of the Lucky Friday expansion project. The first phase consisted
primarily of driving an access drift from the 4900-foot level of the Lucky
Friday workings, which intersected the Gold Hunter ore zone approximately 850
feet below the previously explored area. The access drift advanced 3,000 feet
in 1995, and exploratory drilling started in the second quarter of 1996. A
final feasibility study was completed in 1997, and Hecla's Board of Directors
approved a $16.0 million development plan. Initial production from the project
was achieved in 1997, and full production was reached on schedule in the second
quarter of 1998.
Hecla controls the Gold Hunter property under a long-term operating
agreement which entitles Hecla, as operator, to a 79.08% interest in the net
profits from operations from the Gold Hunter properties. Hecla will be
obligated to pay a royalty after it has recouped its costs to explore and
develop the properties. As of December 31, 1999, unrecouped costs totaled
approximately $30.3 million.
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The principal mining method at the Lucky Friday mine is ramp access, cut
and fill. This method utilizes rubber-tired equipment to access the veins
through ramps developed outside of the orebody. Once a cut is taken along the
strike of the vein, it is backfilled with cemented tailings and the next cut is
accessed, either above or below, from the ramp system.
The ore produced from the mine is processed in a 1,100 ton per day
conventional flotation mill. In 1999, ore was processed at a rate of
approximately 1,016 tons per day at the Lucky Friday mine site. The flotation
process produces both a silver-lead concentrate and a zinc concentrate. During
1999, approximately 94% of the silver, 93% of the lead and 41% of the zinc were
economically recovered.
The Lucky Friday mine/mill facility, surface and underground equipment are
in good working condition. The mill was originally constructed approximately 40
years ago. Hecla maintains and modernizes the plant and equipment on an ongoing
basis to keep the plant and equipment in good physical and operating condition.
The net book value of the Lucky Friday mine property and its associated plant
and equipment was approximately $38 million as of December 31, 1999.
Ultimate reclamation activities contemplated include stabilization of
tailings ponds and waste rock areas. Total reclamation expense recognized in
1999 was approximately $35,600 which included $18,400 for reclamation activities
performed in 1999 and an accrual of $17,200 for future reclamation activities.
Even though recent historical total production costs have exceeded revenues
realized from the sale of recovered metals, based upon management's estimates of
metal to be recovered and considering estimated future production costs and
metals prices, Hecla's management believes that the carrying value of the Lucky
Friday mine is recoverable from future undiscounted cash flows generated from
operations and the estimated salvage value of the surface plant, equipment and
the value associated with property rights. In evaluating the carrying value of
the Lucky Friday mine, Hecla used metals prices of $5.50 per silver ounce in
2000 and then $6.00 silver thereafter; $0.25 per lead pound in 2000, $0.27 lead
in 2001 and then $0.30 lead thereafter; and $0.55 per zinc pound in 2000 and
then $0.52 zinc thereafter. These prices were utilized as Hecla's management
believes that they are reasonable estimates of prices over the remaining life of
the mine.
In contrast to longer-term prices used for estimating life-of-mine revenues
and resultant cash flows, Hecla uses near-term estimates of metal prices to
estimate ore reserves as they more closely reflect the current economic
conditions at the measurement date. Estimated future production costs were
derived from actual production costs currently being experienced at the Lucky
Friday mine adjusted for anticipated changes resulting from the execution of
Hecla's mine production plan. Based upon these projected
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factors, Hecla currently estimates that future cash and total production costs
per ounce of silver produced over the remaining life of the mine would be
approximately $4.28 and $5.65, respectively. As these amounts are derived from
numerous estimates, the most volatile of which are metal prices, there can be no
assurance that actual results will correspond to these estimates.
Historically, the Lucky Friday silver-lead concentrate has been shipped
primarily to the ASARCO smelter in East Helena, Montana. With the increased
production starting in 1998 from the Gold Hunter orebody, the silver-lead
concentrates have been shipped to several different smelters in Canada, the
United States, Mexico and Europe. In 2000, it is anticipated that the Lucky
Friday silver-lead concentrate production will be shipped to ASARCO's smelter in
East Helena, Montana, to Met-Mex Penoles' smelter in Torreon, Coahuila, Mexico,
to Cominco's smelter in Trail, British Columbia, Canada, and to Noranda's
smelter in Belledune, New Brunswick, Canada.
The Lucky Friday zinc concentrates are shipped to Cominco's smelter in
Trail, British Columbia, Canada.
Based on Hecla's experience in operating deep mines in the Coeur d'Alene
Mining District, where the persistence of mineralization to greater depths may
be reliably inferred from operating experience and geological data, Hecla's
policy is to develop new levels at a minimum rate consistent with the
requirements for uninterrupted and efficient ore production. A new level is
developed and brought into production only to replace diminishing ore reserves
from levels being mined out. The length and strength of the orebodies have not
materially diminished on the lowest developed level of the mine. Based upon
this factor, drilling data and extensive knowledge of the geologic character of
the deposit, and many years of operating experience in the Lucky Friday mine and
Coeur d'Alene Mining District, there are no geologic factors known at present
that appear to prevent the assumed continuation of the Lucky Friday and Gold
Hunter orebodies for a considerable distance below the lowermost working level.
Although there can be no assurance of the extent and quality of the
mineralization that may be developed at greater depths, the existing data and
operating experience justify, in the opinion of Hecla's management and based
upon industry standards, the conclusion that the mineralization will extend well
below the lowest developed levels.
Information with respect to the Lucky Friday mine's production, average
cost per ounce of silver produced and Proven and Probable ore reserves for the
past three years is set forth in the table below:
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Years
------------------------------------
Production 1999 1998 1997
- ----------- -------- -------- --------
Ore milled (tons) 309,953 263,502 193,399
Silver (ounces) 4,441,250 4,137,135 1,943,373
Gold (ounces) 655 925 853
Lead (tons) 27,613 27,708 19,270
Zinc (tons) 2,926 2,648 3,168
Average Cost per Ounce
of Silver Produced
- ------------------
Cash operating costs $ 4.90 $ 4.71 $ 5.47
Total cash costs $ 4.90 $ 4.71 $ 5.47
Total production costs $ 5.85 $ 5.59 $ 6.72
Proven and Probable
Ore Reserves(1,2,3) 12/31/99 12/31/98 12/31/97
- ------------------- -------- -------- --------
Total tons 1,669,450 1,220,820 1,388,590
Silver (ounces per ton) 15.1 15.9 14.8
Lead (percent) 9.6 10.5 10.2
Zinc (percent) 1.6 1.8 1.9
Contained silver (ounces) 25,179,141 19,459,256 20,532,121
Contained lead (tons) 160,693 128,748 141,470
Contained zinc (tons) 26,895 21,965 25,703
- --------------------------
(1) For Proven and Probable ore reserve assumptions and definitions, see
Glossary of Certain Mining Terms.
(2) Hecla's Lucky Friday mine ore reserves increased, in 1999 from 1998, in
metal content but decreased in grade of silver, lead and zinc due to
additional diamond drilling and incorporation of the information in a new,
in-house estimate of reserves. The mine uses a combination of
geostatistical and traditional methods to estimate reserves.
(3) Reserves are in-place material that incorporate estimates of waste dilution
and expected mining recovery. Mill recoveries are expected to be 94% of
silver, 93% of lead and 45% of zinc for the in-place reserves stated above.
At December 31, 1999, there were 210 employees at the Lucky Friday mine.
The United Steelworkers of America is the bargaining agent for the Lucky Friday
hourly employees. The current labor agreement expires on June 1, 2002. Avista
Corporation supplies electrical power to the Lucky Friday mine.
<PAGE> 10
Greens Creek Mine - Admiralty Island, Alaska
At December 31, 1999, Hecla held a 29.73% interest in the Greens Creek
mine, located on Admiralty Island, near Juneau, Alaska, through a joint venture
arrangement with Kennecott Greens Creek Mining Company (KGCMC), the manager of
the mine and a wholly owned subsidiary of Kennecott Corporation. The Greens
Creek mine is a polymetallic deposit containing silver, zinc, gold and lead.
Greens Creek lies within the Admiralty Island National Monument, an
environmentally sensitive area. The Greens Creek property includes 17 patented
lode claims, and one patented millsite claim in addition to property leased from
the U.S. Forest Service. Greens Creek also has obtained title to mineral rights
on 7,500 acres of federal land adjacent to the mine properties. The entire
project is accessed and served by 13 miles of road and consists of the mine, an
ore concentrating mill, a tailings impoundment area, a ship-loading facility,
camp facilities and a ferry dock.
In February 1993, as a result of depressed metals prices and a glut in
world concentrate markets, the decision was made to place the mine on temporary
shutdown. Commercial production ceased in April 1993, and the mine and mill
were placed on a care-and-maintenance basis. Exploration and mine development
activities continued at the mine during the shutdown. Follow-up drilling on
previously identified targets was successful in identifying a new ore zone, the
Southwest Extension.
In January 1994, a feasibility study was initiated to determine the
advisability of placing the mine back into production. The feasibility study
was completed in the fourth quarter of 1994 and in 1995 the decision was made to
reopen the Greens Creek mine, with commercial production estimated to recommence
by early 1997. Included in the reopening project were development of the
Southwest ore zone, purchase of new mine mobile equipment, upgrading of
ancillary facilities, improvement of environmental control systems and
modification of the process plant. The reopening project was completed ahead of
schedule, production began in July 1996 and full production levels were achieved
in January 1997.
Environmental permitting during the reopening project included obtaining
regulatory agency approval of the updated General Plan of Operations and Large
Mine Permit. The approvals included revisions to appendices regarding fresh
water monitoring, tailings site operation and maintenance, development rock
management and water systems operation. Other actions included Forest Service
approval to house production workers in a worker-camp at Hawk Inlet, and State
of Alaska legislative changes allowing extended working shifts for miners.
State of Alaska permitting action included renewal of the Air Quality Permit by
the Alaska Department of Environmental Control. Permits that were in-progress
at the end of 1999 included the Alaska Department of
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Environmental Control solid waste permit for tailings disposal and renewal of
the mine waste-water discharge permit. As part of a settlement for civil
penalties associated with past discharges, Greens Creek is under an
Administrative Consent Decree with the Environmental Protection Agency.
Currently, Greens Creek is mining approximately 1,600 tons per day
underground from the 200 South, the Southwest and West ore zones. Ore from the
underground trackless mine is milled at the mine site. The mill produces
gold/silver dore; and lead, zinc and bulk concentrates. The dore is marketed to
a precious metal refiner and the three concentrate products are predominantly
sold to a number of major smelters worldwide. A lesser amount of the
concentrates are sold to metal merchants under short-term agreements.
Concentrates are shipped from a marine terminal located on Admiralty Island
about nine miles from the mine site. The Greens Creek mine uses electrical
power provided by diesel-powered generators located on-site.
A land exchange agreement was approved by Congress and signed into law by
President Clinton on April 1, 1996. The joint venture secured private property
equal to a value of $1.0 million and transferred title to the U.S. Forest
Service. Greens Creek thereby received access to approximately 7,500 acres of
land with potential mining resources surrounding the existing mine. Production
from new ore discoveries on the exchange lands will be subject to the federal
royalties included in the land exchange agreement. The federal royalties are
based on a defined calculation that is similar to the calculation of net smelter
return and are equal to 0.75% or 3% of the calculated amount depending on the
value of the ore extracted.
Exploration efforts in 1997 at Greens Creek discovered an extension to the
Southwest ore zone called the 200 South ore deposit. Definition drilling during
1998 on the new 200 South ore zone resulted in important additions to the mine's
Proven and Probable ore reserves. Drilling continued in 1999, resulting in net
additions to the 200 South and other reserves, sufficient to approximately
replace production.
As of December 31, 1999, there were 266 employees at the Greens Creek mine.
The employees at the Greens Creek mine are not represented by a bargaining
agent. At December 31, 1999, Hecla's interest in the net book value of the
Greens Creek mine property and its associated plant and equipment was $65.4
million.
Based upon management's estimates of metal to be recovered and considering
estimated future production costs and metals prices, Hecla's management believes
that the carrying value of the Greens Creek mine is recoverable from future
undiscounted cash flows generated from operations. In evaluating the carrying
value of the Greens Creek mine, Hecla used metals prices of $300 per gold ounce
in 2000 and $325 gold thereafter; $5.50 per silver ounce in 2000 and $6.00
silver thereafter; $0.25 per lead pound
<PAGE> 12
in 2000, $0.27 lead in 2001 and $0.30 lead thereafter; and $0.55 per zinc pound
in 2000 and $0.52 zinc thereafter. These prices were utilized as Hecla's
management believes that they are reasonable estimates of average prices over
the remaining life of the mine. In contrast to longer-term prices used for
estimating life-of-mine revenues and resultant cash flows, Hecla uses near-term
estimates of metals prices, process recoveries and smelter terms to estimate ore
reserves as they more closely reflect the current economic conditions at the
measurement date. Estimated future production costs were derived from actual
production costs experienced at the mine, adjusted, as necessary, for
anticipated changes resulting from the execution of the mine manager's mine
production plan. Based upon these projected factors, Hecla estimates that
future cash and total production costs per ounce of silver produced over the
remaining life of the mine would be $2.39 and $5.35, respectively. As these
amounts are derived from numerous estimates, the most volatile of which are
metals prices, there can be no assurance that actual results will correspond to
these estimates.
The Greens Creek deposit consists of zinc, lead, and iron sulfides and
copper-silver sulfides and sulfosalts with substantial contained gold and silver
values. The deposit has a vein-like to blanket-like form of variable thickness.
The ore is thought to have been laid down by an "exhalative" process (i.e.,
volcanic-related rifts or vents deposited base and precious metals onto an ocean
floor). Subsequently, the mineralization was folded and faulted by multiple
generations of tectonic events.
The estimated ore reserves for the Greens Creek mine are computed by
Kennecott Greens Creek Mining Company's geology and engineering staff with
technical support from Kennecott Corporation. Geologic interpretations and
reserve methodology are reviewed by Hecla, but the reserve compilation is not
independently confirmed by Hecla in its entirety. Information with respect to
Hecla's 29.73% share of production, average cost per ounce of silver produced
and Proven and Probable ore reserves is set forth in the table below:
Years (reflects 29.73% interest)
-------------------------------------
Production 1999 1998 1997
- ---------- --------- --------- ---------
Ore milled (tons) 171,946 160,567 145,676
Silver (ounces) 3,050,849 2,823,660 2,889,265
Gold (ounces) 23,802 18,008 16,604
Zinc (tons) 20,373 17,507 13,662
Lead (tons) 7,582 6,747 5,725
Average Cost per
Ounce of Silver Produced
- ------------------------
Cash operating costs $ 1.99 $ 2.86 $ 2.31
Total cash costs $ 1.99 $ 2.86 $ 2.31
Total production costs $ 4.37 $ 5.06 $ 4.55
<PAGE> 13
Proven and Probable
Ore Reserves(1,2,3,4) 12/31/99 12/31/98 12/31/97
- --------------------- ---------- ---------- ----------
Total tons 2,977,960 2,901,028 2,494,085
Silver (ounces per ton) 16.2 15.4 18.6
Gold (ounces per ton) 0.14 0.14 0.15
Zinc (percent) 11.9 12.3 12.7
Lead (percent) 4.5 4.5 4.5
Contained silver (ounces) 48,324,528 44,733,855 46,467,846
Contained gold (ounces) 403,552 411,946 369,173
Contained zinc (tons) 354,657 357,407 317,497
Contained lead (tons) 133,194 130,836 112,234
- -----------------------
(1) For Proven and Probable ore reserve assumptions and definitions, see
Glossary of Certain Mining Terms.
(2) Ore reserves represent in-place material, diluted and adjusted for expected
mining recovery. Payable recoveries of ore reserve grades by smelters and
refiners are expected to be 66% for silver, 50% for gold, 67% for zinc and
62% for lead.
(3) The changes in reserves in 1999 versus 1998 were due to property-wide
reassessment of the ore zones. KGCMC made new estimates of reserves based
on drill programs for the 200 South, 5250, West, West Bench, and Deep Lower
Southwest zones. All ore reserves were retabulated based on a new net
smelter return model. The increase in silver ounces in 1999 versus 1998 is
primarily attributable to upward revisions in estimated silver grade in the
200 South zone.
(4) The decrease in contained silver in 1998 versus 1997 is a result of
reductions for 1998 production and Southwest ore zone adjustments due to
capping of high grades, restriction of the mineral envelope, and to a
lesser extent, smelter contract changes, and mining recovery and dilution
assumptions. These decreases were partially offset by the addition of the
new 200 South ore zone and the 5250 ore zone.
<PAGE> 14
Metals - Gold Segment
Rosebud Gold Mine - Nevada
The Rosebud Gold Mine, in which Hecla has a 50% interest, is located in the
Rosebud Mining District, in Pershing County, Nevada. The Rosebud property
consists of a 100% interest in three patented lode-mining claims, 786 unpatented
lode-mining claims and four additional patented lode-mining claims currently
under lease. Additionally, Rosebud has a majority interest in 48 lode-mining
claims held under a joint venture agreement with N.A. Degerstrom Inc. The total
841 claims cover approximately 17,000 acres and collectively comprise the
"Rosebud mine." Patent application has been made on the 13 claims that contain
all of the Proven and Probable ore reserves. The Rosebud mine may be reached
from Winnemucca, Nevada, by travelling west a distance of approximately 58 miles
on an all-weather gravel road. At December 31, 1999, Hecla's interest in the
net book value of property, plant and equipment at the Rosebud mine totaled $6.2
million.
On September 6, 1996, Hecla and Santa Fe Pacific Gold Corporation (Santa
Fe) entered into a 50/50 joint venture agreement to develop the Rosebud mine.
Pursuant to the agreement, a limited liability corporation (The Rosebud Mining
Company, LLC) was established to develop the Rosebud gold property with each
party owning a 50% interest. In May 1997, Santa Fe was merged into Newmont Gold
Company. Newmont thus became the successor in interest to Santa Fe's portion of
The Rosebud Mining Company, LLC. Under the terms of the agreement, Hecla
manages the mining activities and the ore is hauled via truck approximately 110
miles to Newmont's Twin Creeks Pinon mill for processing. In late 1999, Newmont
indicated its intent to participate at a somewhat reduced level in the future,
with its interest being diluted according to the agreement. Hecla estimates
that its interest in the Rosebud property increased to 51.36% effective January
1, 2000.
Mine-site construction began during September 1996 and was completed during
March 1997. The mine commenced operations in March 1997. Capital expenditures
to bring the mine into production totaled $18.7 million. Newmont funded the
first $12.5 million of mine-site development and also funded costs of road and
mill facility improvements which were completed during 1997. Newmont also
contributed to the joint venture exploration property located near the Rosebud
property and funded the first $1.0 million in exploration expenditures and two-
thirds of all exploration expenditures beyond the initial $1.0 million.
In 1993, Hecla sold, for $2.5 million, a 2.5% net smelter return royalty
and an option to purchase an additional 1.5% net smelter return royalty on the
Rosebud property to Euro-Nevada Mining Corporation Inc. (Euro-Nevada). The
option for the additional 1.5% royalty was exercised by Euro-Nevada in the
fourth quarter of 1996. The proceeds of $2.5 million were retained by Hecla
under the terms of the agreement with Newmont.
<PAGE> 15
Gold mineralization in the South, North and East Zones, as in many other
volcanic-hosted gold deposits, is erratically distributed with numerous low-
grade drill hole intercepts interspersed with higher grade drill hole intercepts
over an area of approximately 1,000 feet east-west and 1,000 feet north-south.
Drilling has also intersected further mineralization proximal to the mine.
Permitting related work, which began during 1994, was completed during 1996.
Total mine production during 1999 averaged 738 tons per day of ore. Ore
grades milled were 0.42 gold ounce per ton and 1.48 ounces of silver per ton.
The ore produced from the mine is processed in a conventional carbon-in-leach
circuit. The mill produces a high quality gold-silver dore. During 1999, 95.1%
of the gold and 59.1% of the silver processed at the mill were economically
recovered. Hecla's share of 1999 production was approximately 56,000 gold
ounces and 124,000 silver ounces.
The following table presents information with respect to Hecla's 50% share
of production, the average cost per ounce of gold produced and Proven and
Probable ore reserves for the Rosebud Project as of the dates indicated:
Years (reflects 50% interest)
---------------------------------
1999 1998 1997
-------- -------- --------
Production
- -----------------------
Ore milled 140,351 171,493 99,050
Gold recovered (ounces) 56,329 65,496 46,974
Silver recovered (ounces) 123,953 278,290 168,584
Average Cost per Ounce
of Gold Produced
- ----------------------
Cash operating costs $ 184 $ 157 $ 137
Total cash costs $ 199 $ 176 $ 156
Total production costs $ 301 $ 274 $ 263
Proven and Probable
Ore Reserves (1,2,3) 12/31/99 12/31/98 12/31/97
- -------------------- -------- -------- --------
Total tons 107,837 241,927 471,521
Gold (ounce per ton) 0.323 0.392 0.420
Silver (ounces per ton) 1.23 1.80 2.92
Contained gold (ounces) 34,857 94,808 197,817
Contained silver (ounces) 132,216 436,252 1,378,201
- ------------------------
<PAGE> 16
(1) For Proven and Probable ore reserve assumptions, including assumed metals
prices, see Glossary of Certain Mining Terms.
(2) The decrease in tons of Proven and Probable ore reserves in 1999 compared
to 1998 is primarily attributable to production during 1999, a decrease in
dilution applied to the East Zone, reestimation of the North Zone using 89
new drill holes, reestimation of the South Zone using 25 new
drill holes, and reclassification of reserve blocks that no longer meet
Proven and Probable criteria. The decrease in tons of Proven and Probable
ore reserves in 1998 compared to 1997 is attributable to production during
1998, reestimation of the East Zone using 108 new drill holes, an increase
in cutoff grade from 0.150 oz./ton to 0.180 oz./ton, and reclassification
of reserve blocks that no longer meet Proven and Probable criteria.
(3) Ore reserves represent in-place material, diluted and adjusted for expected
mining recovery. Mill recoveries are expected to be 95% for gold and 65%
for silver. Ore reserve estimates are performed by geostatistical methods
in-house, based on drilling, sampling of mine openings and operations
experience.
As of December 31, 1999, there were 93 employees at the Rosebud mine. The
employees at the mine are not represented by a bargaining agent. The Rosebud
mine uses power provided by Sierra Pacific Power.
La Choya Gold Mine - Sonora, Mexico
The La Choya gold mine is located 30 miles south of the U.S. border in the
State of Sonora, Mexico, and is 100% owned by Hecla through a Mexican
subsidiary, Minera Hecla, S.A. de C.V. In May 1992, Hecla exercised its option
to purchase the Mexican mineral concessions related to this property which
includes a land position of over 16,000 acres.
The La Choya gold mine commenced operations in February 1994 and produced
approximately 330,000 ounces of gold between 1994 and 1999, including
approximately 12,000 ounces in 1999. Hecla expects to produce 700 ounces of
gold in 2000 from La Choya. Proven and Probable ore reserves were exhausted and
the La Choya gold mine was shut down on December 19, 1998. However, additional
gold is being recovered from draining of the leach pads. The average life-of-
mine recovery of contained gold ounces is estimated at 85.4%.
Information with respect to the La Choya gold mine production, average cost
per ounce of gold produced and Proven and Probable ore reserves, as of the dates
indicated, are set forth in the following table:
<PAGE> 17
Years
-----------------------------------
Production 1999 1998 1997
- ------------ -------- --------- ---------
Ore processed (tons) - - 1,672,438 2,828,335
Gold (ounces) 11,857 39,965 78,170
Average Cost per Ounce
of Gold Produced
- ----------------------
Cash operating costs $ 231 $ 211 $ 183
Total cash costs $ 231 $ 211 $ 184
Total production costs $ 341 $ 242 $ 224
Proven and Probable
Ore Reserves(1) 12/31/99 12/31/98 12/31/97
- --------------- -------- -------- --------
Total tons - - - - 632,844
Gold (ounce per ton) - - - - 0.018
Contained gold (ounces)(2) - - 11,883 46,545
- ----------------------
(1) For Proven and Probable ore reserve assumptions, including assumed metals
prices, see Glossary of Certain Mining Terms.
(2) Contained gold ounces include estimated recoverable gold ounces on the heap
leach pads totaling approximately 12,000 and 35,000 gold ounces at December
31, 1998 and 1997, respectively. These ounces were placed on the pads
during 1994-1998 and are currently estimated to be recovered over the
mine's remaining life.
Reclamation activities, consisting of rinsing the leach pads, recontouring
the waste dumps and leach pads, and revegetating the site, were carried out
during 1999 and will be completed during 2000. During 1999, approximately
$315,000 was expended on concurrent reclamation activities.
As of December 31, 1999, the net book value of the La Choya mine property,
plant and equipment was $1.3 million. Electrical power is provided by on-site
diesel generators.
La Camorra Gold Mine - Bolivar, Venezuela
The La Camorra mine is located in the eastern Venezuela State of Bolivar,
approximately 120 miles southeast of Puerto Ordaz. It is 100% owned by Hecla
and has been a producing mine for Hecla since October 1999. Hecla acquired the
La Camorra mine in June 1999 with the acquisition of Monarch Resources
Investments Limited.
<PAGE> 18
At the time of acquisition, the tailings impoundment was at capacity.
Processing operations were suspended during the third quarter of 1999 to allow
additional tailings capacity to be constructed. During this period, mine
development was accelerated and remedial maintenance was carried out on the mine
and process plant equipment.
La Camorra is a high-grade underground gold mine that exploits two shear-
zone hosted quartz veins. It lies in the Botanamo greenstone belt of the
Precambrian Guayana Shield and is hosted by the Caballape Group of
volcaniclastics. The formations most likely date from Archean to Proterozoic
age and consist primarily of intermediate volcanics with subordinate
metasediments. Within the La Camorra concession, the gold mineralization is
associated with the near vertical Main and Betszy quartz veins occurring in a
west-northwest, east-southeast shear zone within medium to coarse-grained
pyroclastics.
Gold occurs both as free particles in quartz and attached to or included in
pyrite. Locally, gold is also seen on chloritic partings.
In 1998, a core drilling program was initiated to test the depth extension
of the ore zones below the -400 meter level. Hecla believes that the results of
such program confirm that ore grade mineralization extends to depths well below
the levels to which the current mine reserves have been delineated.
In addition, Hecla controls nine other exploration concessions near the La
Camorra mine encompassing 8,000 hectares.
Access to the underground workings is through a decline excavated at a -15%
grade. Ore is mined primarily by longhole stoping, with cut and fill stoping
used in some areas. Ore is extracted from the stopes using rubber-tired
equipment and hauled to the surface in mine haulage trucks. Subeconomic
material is used to backfill and stabilize mined-out stopes. The mine is
currently producing approximately 450 tons of ore per day.
The process plant uses a conventional carbon-in-leach process. The ore is
crushed in a modular two-staged crushing plant consisting of a primary jaw, a
secondary cone crusher and a double deck vibrating screen. The grinding circuit
includes a primary and a secondary ball mill. The ground ore is mixed with a
cyanide solution and clarified, followed by countercurrent carbon-in-leach gold
adsorption. The carbon is then stripped and the gold recovered and poured into
gold bars for shipment to a refiner. Plant recovery is estimated at 94%.
<PAGE> 19
The plant was constructed in 1994 and has been operated since that time.
It is well-designed and the equipment is in good condition. The plant is
capable of processing approximately 450 tons per day. Site infrastructure
includes a water supply system, maintenance shop, warehouse, living quarters, a
dining facility, administration building and a National Guard post. The Company
also shares a housing facility located near the town of El Callao with units for
approximately 50 families. Mine electric power is purchased from Eleoriente
(the state owned electric company). Diesel-powered electric generators are
available on-site to enable operation of critical equipment during power
outages.
Hecla is proposing a reclamation plan for review by the Ministry of
Environment and Natural Resources. Planned activities include regrading and
revegetation of disturbed areas. A reclamation and closure accrual of $0.5
million had been established as of December 31, 1999.
At December 31, 1999, there were 221 hourly and 24 salaried employees.
Most hourly workers are represented by the Mine Workers union. The present
contract expires in November 2000. Hecla anticipates no work stoppage and that
a satisfactory contract can be negotiated, although there can be no assurance
that this can be done without a disruption to production.
Information with respect to the La Camorra mine's production, average cost
per ounce of gold produced and Proven and Probable ore reserves as of December
31, 1999 is set forth in the table below.
Year
---------
Production 1999
----------- ---------
Ore processed (tons) 39,048
Gold (ounces) 17,340
Average Cost per Ounce
of Gold Produced
----------------------
Cash operating costs $ 208
Total cash costs $ 208
Total production costs $ 260
Proven and Probable
Ore Reserves(1,2) 12/31/99
--------------------- ---------
Total tons 577,003
Gold (ounce per ton) 0.544
Contained gold (ounces) 313,616
----------------------
<PAGE> 20
(1)For Proven and Probable ore reserve assumptions, including assumed
metals prices, see Glossary of Certain Mining Terms.
(2)Ore reserves represent in-house material, diluted and adjusted for
expected mining recovery. Mill recoveries are expected to be 93%.
Ore reserves are estimated by geostatistical methods in-house based on
drill holes, underground mine sampling and operations experience.
Industrial Minerals Segment
Hecla's principal industrial minerals assets are its ball clay operations
in Kentucky, Tennessee and Mississippi; its kaolin operations in South Carolina
and Georgia; its feldspar operations in North Carolina; its clay slurry plant in
Monterrey, Mexico; and its specialty aggregate operations (primarily scoria) in
southern Colorado and northern New Mexico. Hecla conducts these operations
through four wholly owned subsidiaries: (1) Kentucky-Tennessee Clay Company (K-
T Clay), which operates its ball clay and kaolin divisions; (2) K-T Feldspar
Corporation (K-T Feldspar), which operates the feldspar business; (3) K-T Clay
de Mexico, S.A. de C.V. (K-T Mexico), which operates the clay slurry plant
business; and (4) MWCA, Inc., which operates Hecla's specialty aggregate
business, and in 1999, operated its lawn and garden products business. In March
2000, Hecla sold its lawn and garden division of MWCA, Inc.
K-T Clay Ball Clay Division
K-T Clay is a major supplier of premium ball clay to North America and
worldwide. Ball clay, which is of sedimentary origin, consists of several basic
clay minerals along with a slight amount of organic content, a combination of
materials that gives ball clay its unique character. The principal use of ball
clay is in the ceramic and porcelain fields, which includes use for such items
as pottery, dinnerware, tile, electrical insulators and sanitaryware. Ball clay
is also used in refractories and abrasives and has applications in other
specialty industries as well.
Mining of ball clay is accomplished through strip mining methods. The
mining activity requires definition drilling and the removal of overburden in
order to expose the clay strata to be mined. Mining activity is selective based
on clay grade and strata control. The clays are mined with loaders and
backhoes, loaded into trucks and hauled to one of K-T Clay's plants for
processing. Processing of ball clay consists of shredding and classification of
clay by various grades, hammer or roller milling to reduce particle size, drying
and packaging. The clays can be shipped in bulk or blended and bagged in order
to meet a particular customer's requirements. A particular clay or blend of
several clays can also be shipped to customers in a water slurry form in tanker
trucks or railcars.
<PAGE> 21
There are many grades of ball clay which K-T Clay mines, processes and
blends to meet the specifications and requirements of its various customers.
Different uses may require mixtures of ball clay having substantially different
physical properties, and K-T Clay, through many years of experience and ongoing
research performed in its laboratories, possesses the expertise and reserves of
various types of ball clays that enables it to respond to changes in customer
requirements with minimal advance notice. The marketing of ball clays is
directed from K-T Clay's resource center in Nashville, Tennessee. K-T Clay's
marketing personnel are trained in ceramic engineering or related technical
fields, which also enables K-T Clay to respond to changes in its customer
requirements.
K-T Clay mines and processes different grades of ball clays in Kentucky,
Tennessee and Mississippi. K-T Clay has identified or delineated deposits of
ball clay on numerous properties. Such properties are either owned in fee
simple or held under long-term lease. The royalties or other holding costs of
leased properties are consistent with the industry, and the expiration of any
particular lease would not affect K-T Clay's ability to operate at current
levels of operations. K-T Clay has sufficient mineral reserve positions to
maintain current operations in excess of 20 years. K-T Clay is also
continuously exploring for new deposits of ball clay, either to replace certain
grades of clay that may become mined out or to locate new deposits that can be
mined at lower cost.
Minimum standards for strip mining reclamation have been established by
various governmental agencies which affect K-T Clay's ball clay mining
operations. The Tennessee Surface Mining Law and the Mississippi Geological
Economics and Topographical Survey, Division of Mining and Reclamation, require
all ball clay producers, including K-T Clay, to post a performance bond on
acreage to be disturbed. The release of the bond is dependent on the successful
grading, seeding and planting of spoil areas associated with current mining
operations. In addition, the United States Environmental Protection Agency has
issued guidelines and performance standards which K-T Clay must meet. K-T Clay
may be required to obtain other licenses or permits from time to time, but it is
not expected that any such requirements will have a material effect upon Hecla's
results of operations or financial condition.
There were 152 people employed by K-T Clay at its ball clay operations as
of December 31, 1999. There were 28 hourly employees represented by the United
Steelworkers of America as of December 31, 1999. The employment of these hourly
employees is subject to a three-year labor agreement which expires on February
8, 2003. The net book value of the K-T ball clay division properties, plants
and equipment was $9.3 million at December 31, 1999.
<PAGE> 22
K-T Clay Kaolin Division
K-T Clay acquired the kaolin operations and assets of Cyprus Minerals
Company's clay division on February 17, 1989, which included kaolin mines and
plants at Deepstep and Sandersville, Georgia, and Aiken, South Carolina. On
June 1, 1995, K-T Clay acquired the operation and assets of the Langley plant of
JM Huber Corporation in Langley, South Carolina. Kaolin, or china clay, is a
nearly white clay of sedimentary origin, and is consumed in a variety of end
uses including ceramic whiteware, textile grade fiberglass, rubber and paper
filler, and miscellaneous plastics, adhesives and pigment applications. Kaolin
is a unique industrial mineral because of its wide range of chemical and
physical properties. The K-T Clay kaolin division mines, processes and blends
numerous grades of clay to meet the specifications and requirements of its
customers.
Markets for K-T Clay's kaolin products are similar to ball clay and adverse
shifts in market demand could occur due to mineral substitution and decreased
demand for end-use products, which could adversely impact the demand for kaolin.
Kaolin currently competes with minerals such as calcium carbonate in many filler
applications, but the substitution of other minerals for kaolin in ceramic and
fiberglass applications is presently limited. The marketing of kaolin to the
ceramics industry is carried out by K-T Clay's sales force. Marketing to other
industries is done through sales and distribution agents.
Kaolin is mined by open-pit methods. Orebodies are identified and
delineated by exploration drilling and overburden is removed by scrapers down to
favorable clay strata. Select mining of clay is then accomplished by backhoe
with over-the-road truck haulage to the processing and stockpiling facilities.
K-T Clay operates kaolin mines in Georgia, serving its processing plants located
at Sandersville and Deepstep, Georgia. K-T Clay also operates kaolin mines
located in South Carolina, serving a processing plant located in Langley, South
Carolina.
Processing of the clays is completed by the air-floating method where clay
is shredded, dried, ground and separated by particle size at the Sandersville,
Deepstep and Langley locations. In addition, clay is processed into a water
slurry mixture at the Sandersville location.
K-T Clay's kaolin division holds in excess of 20 years of mineral reserves
based on current sales and product mix. Reserves are held on fee simple and
leased property. K-T Clay is also continuously exploring for new deposits of
kaolin, either to replace certain grades of kaolin that may become mined out or
to locate new deposits that can be mined at lower cost.
<PAGE> 23
The kaolin division operates its mines in Georgia and South Carolina under
mine permits issued by the Environmental Protection Division, Department of
Natural Resources of the State of Georgia, and the Land Resource Conservation
Commission, Division of Mining and Reclamation of the State of South Carolina.
All kaolin division mines and processing plants have current permit status and
are in good standing.
There were 131 people employed by K-T Clay at its kaolin division as of
December 31, 1999, with less than 25% of the labor force being represented by
the Cement, Lime, Gypsum and Allied Workers Division of International
Brotherhood of Boilermakers. The employment of these employees is subject to a
three-year labor agreement which expires on March 1, 2002.
Both the ball clay and kaolin divisions of K-T Clay's plants and equipment
have been operational in excess of 30 years. Hecla has upgraded and modernized
these facilities over the years and has a continuing maintenance program to
maintain the plant and equipment in good physical and operating condition. In
1998, a major expansion at the Gleason, Tennessee, ball clay operation was
completed to service a new customer in the fiberglass industry. The expansion
increased the plant's capacity by 60,000 tons annually. The net book value of
the K-T Clay kaolin division property and its associated plant and equipment was
$13.2 million as of December 31, 1999. K-T Clay utilizes power from several
public utilities as well as local utility cooperatives located in the vicinity
of K-T Clay's operating plants.
K-T Feldspar Corporation
Hecla acquired the operations and assets of K-T Feldspar Corporation on
December 13, 1990, including sodium feldspar mines and a processing plant
located near Spruce Pine, North Carolina. Feldspars are a mineral group that
are the major constituents of igneous rocks and important constituents of other
major rock types. The feldspars are the most widespread mineral group and make
up 60% of the earth's crust. Chemically the feldspars are aluminosilicates that
contain potassium, sodium and calcium.
K-T Feldspar mines, processes and blends sodium feldspar and feldspar-
silica products. It also produces by-product mica concentrate and construction
sand. K-T Feldspar products are primarily used in the ceramic whiteware, glass
and paint industries.
Markets for feldspar have fluctuated slightly over time as a result of
mature market conditions. However, adverse shifts in market demand could occur
due to mineral substitution and decreased demand for end-use products. Feldspar
currently competes with nepheline syenite and silica in some market segments and
substitution between minerals is linked to economics, physical-chemical
characteristics and supplier reliability. The marketing of feldspar to the
ceramics and filler industries is carried out by K-T Clay's sales force and
through sales and distribution agents.
<PAGE> 24
Feldspar ore is mined by open-pit methods using a 40-foot bench mining
plan. Ore is drilled and blasted, loaded by hydraulic shovel or front-end
loader into off-highway dump trucks and transported to the processing plant. K-
T Feldspar operates several mine locations in the Spruce Pine, North Carolina
area, all serving the centrally located processing plant. Processing of the
feldspar ores consists of crushing, grinding, density separation, flotation,
drying and high-intensity magnetic separation.
K-T Feldspar holds in excess of 20 years of mineral reserves based on
current sales, product mix and lease terms. Reserves are held on fee simple and
leased properties.
K-T Feldspar operates its mines and plant under permits issued by the North
Carolina Department of Natural Resources and Community Development. All permits
are in good standing.
K-T Feldspar's plant and equipment have been operational in excess of 30
years. K-T Feldspar has upgraded and modernized these facilities over the years
and has a continuing maintenance program to maintain the plant and equipment in
good physical and operating condition. The net book value of the K-T Feldspar
property and its associated plant and equipment was $4.8 million as of December
31, 1999. Carolina Power & Light Company, a regulated public utility, provides
the electric power utilized for operations at K-T Feldspar.
There were 51 employees employed by K-T Feldspar as of December 31, 1999.
The employees of K-T Feldspar are not represented by a bargaining agent.
K-T Clay de Mexico, S.A. de C.V.
In 1993, K-T Clay completed construction of its clay slurry plant in
Monterrey, Mexico, which now supplies clay slurry to the Mexican ceramics
industry. Prior to construction, semi-dried clay was shipped to Mexico. The
plant was built to provide K-T Clay's Mexican customers with a high-quality clay
product, slurry, at an economical price and to ensure K-T was the vendor of
choice in Mexico. To reduce freight costs, a bulk air-floated clay weighing
substantially less than clay slurry is now shipped by rail from K-T Clay's
domestic operations to the K-T Mexico slurry plant in Monterrey. The clay is
then blended to customer specifications and converted to a slurry form for final
shipment to its customers in the region. K-T Mexico also uses its Monterrey
facilities to blend complete prepared ceramic bodies for its sanitaryware
customers. The complete bodies, which are supplied ready to use, utilize K-T's
slurry and local ingredients purchased in the domestic market. An expansion
project was commenced in 1999 which will significantly increase the plant's
production capacity. The project, estimated to cost $3.6 million, will place K-
T Mexico in a position from which it can participate in the expanding
sanitaryware market in Mexico.
<PAGE> 25
At December 31, 1999, the net book value of K-T Mexico's property and
associated plant and equipment was $3.2 million. K-T Mexico utilizes electrical
power from the local public utility. There were 42 people employed by K-T
Mexico as of December 31, 1999, of whom 27 were represented by the Industrial
Labor Union of Nuevo Leon. The employment of the unionized employees was
subject to a three-year labor agreement which expired on February 29, 2000;
however, a preliminary agreement to an additional three-year labor agreement,
expiring on February 28, 2003, has been reached.
The decline of the Mexican peso has not significantly impacted the results
at K-T Mexico as both funding for operations and sales are denominated in
dollars. Further declines in the Mexican peso, or accelerated levels of
inflation in Mexico, could, however, adversely impact Hecla's Mexican
operations.
MWCA, Inc.
In 1997, Mountain West Products, Inc. and Colorado Aggregate Company of New
Mexico, both wholly owned subsidiaries of Hecla, were combined into MWCA, Inc.
In order to provide funds for possible metals and industrial minerals expansion
projects, as well as to reduce indebtedness in 1999, Hecla decided to sell MWCA.
Hecla completed a sales transaction for the Mountain West Products division of
MWCA in March 2000. The Colorado Aggregate division is expected to close later
in 2000, although there can be no assurance that the sales transaction will be
completed.
MWCA, Inc. - Mountain West Products Division
Hecla acquired the operations and assets of Mountain West Products in
December 1993, including processing plants in Rexburg, Idaho, and Superior,
Montana. In April 1995, Mountain West purchased the assets of Western Bark
Company, which included processing plants at Kamiah, Idaho; Osburn, Idaho; and
Piedmont, South Dakota. MWCA-Mountain West Products (MWP) division's primary
business is the purchasing, processing and marketing of certain wood by-products
from lumber milling operations in the western intermountain region. These
products are sold as organic soil amendments, organic landscape mulches and
organic decorative landscape ground cover.
Wood by-products are purchased by MWP and transported by truck for
processing at its plants. The processing plants are owned by MWP and the
sources of wood by-product supply are held under contracts. The lumber mills,
which supply the wood by-products, are not owned by MWP. MWP's plants are
located near the current sources of the raw materials to reduce transportation
costs. The principal customers are lawn and garden retail outlets, lawn and
garden product distributors and discount retail chain stores.
<PAGE> 26
Most of MWP's sales are in the western U.S. and take place in the first six
months of the year due to the seasonality of the market. The plants have
operated in excess of 18 years at Rexburg, 11 years at Superior, and 9 years at
Piedmont. In late 1998, the Kamiah plant was closed and its operations were
consolidated with other plant operations. All remaining assets at the Kamiah
plant were sold or transferred to other plants during 1999. All plants are
maintained and upgraded continually and are in good working order. The net book
value of the associated plant and equipment was approximately $1.8 million as of
December 31, 1999. Hecla completed a sales transaction for MWP on March 15,
2000.
Utah Power and Light, Montana Power Company and Black Hills Power provide
electrical power utilized by the operations at Rexburg, Superior and Piedmont,
respectively.
MWP had 102 employees as of December 31, 1999; none of whom are represented
by a bargaining agent.
MWCA, Inc. - Colorado Aggregate Division
MWCA-Colorado Aggregate division (CAC) mines and sells volcanic rock
(scoria) for use as briquettes in gas barbecue grills, as decorative ground
cover, and paints gravel bedding which is used in aquariums. Volcanic scoria is
a lightweight clinker-like material produced during gaseous volcanic eruptions
that form cinder cones. These cones occur frequently in the geological
environment but are unique by density, texture and color.
CAC operates mines at Mesita, Colorado, and in northern New Mexico as well
as processing plants at San Acacio and Antonito, Colorado, and Neosho, Missouri.
All mining is open pit with minimal requirements for the removal of overburden.
The principal customers for scoria briquettes are manufacturers and
retailers of gas barbecue grills. Landscapers, distributors of landscaping
materials, lawn and garden retailers and discount chain stores are the principal
customers for scoria landscape stone. Pet supply retailers and discount chain
stores are the principal customers for aquarium gravel. Due to the seasonal
nature of CAC's business, it is usually anticipated that most of its annual
sales and profits will be generated in the first two quarters of each calendar
year.
The Mesita mine is owned by CAC, and the Red Hill mine in northern New
Mexico is under lease from the Bureau of Land Management. Hecla has over four
years of mineral reserves at the Mesita, Colorado, location and has developed in
excess of 21 years of mineral reserves at the Red Hill mine, in northern New
Mexico. CAC purchases the rock used for aquarium gravel.
<PAGE> 27
CAC's plants and equipment have been operational in excess of 25 years.
CAC has upgraded and modernized these facilities over the years and has a
continuing maintenance program to maintain the plants and equipment in good
physical and operating condition. The net book value of CAC's property and its
associated plants and equipment was $1.8 million as of December 31, 1999.
Public Service Company of Colorado, San Luis Valley Rural Electric Cooperative,
and Empire District Electric Company provide the electric power utilized for
operations at CAC.
CAC had 75 employees as of December 31, 1999. The Teamsters Union is the
bargaining agent for CAC's hourly employees. The current labor agreement
expires on September 17, 2001.
Nonoperating Properties
Republic Mine - Republic, Washington
Hecla owns the Republic gold mine located in the Republic Mining District
near Republic, Washington. In February 1995, Hecla completed operations at the
Republic mine and has been conducting reclamation work in connection with the
mine and mill closure. Hecla's land position in the Republic area consists of
approximately five square miles. In August 1995, Hecla entered into an
agreement with Newmont to explore and develop the Golden Eagle deposit on the
Republic mine property. Newmont conducted extensive exploration on the property
and in the third quarter of 1996 entered into a joint venture agreement
concerning the property. Newmont paid Hecla $2.5 million for an immediate 75%
interest in the joint venture. Newmont is required to fund all expenditures
necessary at the Golden Eagle through the feasibility stage.
At December 31, 1999, the accrued reclamation and closure costs balance
totaled $4.0 million. Reclamation and closure efforts commenced in 1995.
During 1999, the reclamation accrual was reduced by $0.1 million to reflect
current estimates of remaining work to be performed. Post-reclamation
monitoring will be conducted for approximately three years, following completion
of reclamation activities. Reclamation and closure cost expenditures totaling
approximately $0.2 million during 1999 were charged against the previously
established reclamation and closure cost accrual.
The remaining net book value of the Republic mine property and its
associated plant and equipment was approximately $0.6 million as of December 31,
1999.
<PAGE> 28
Grouse Creek Mine - Idaho
The Grouse Creek gold mine is located in central Idaho, 27 miles southwest
of the town of Challis in the Yankee Fork Mining District. Mineral rights
comprising the mine cover 9.1 square miles and consist of 15 patented lode-
mining claims, and two patented placer claims, 43 unpatented millsite claims,
and five unpatented lode claims for which patent applications are pending. The
remainder of the mineral rights in the Yankee Fork Mining District consist of
260 unpatented claims. The mine consists of two distinct ore deposits: the
Sunbeam deposit and the Grouse deposit.
In 1994, Hecla sold to Great Lakes Minerals Inc. (Great Lakes) a 20%
undivided interest in the mine. Pursuant to the acquisition and joint venture
agreements, Great Lakes was required to fund its 20% pro-rata portion of all
capital and operating costs.
Mining in the Sunbeam pit began in late 1994 and operations in 1994 and
1995 experienced higher than expected operating costs and less than expected
operating margins resulting from higher than expected start-up costs and lower
than expected ore grade. Mining indicated that mill grade ore occurred in
thinner, less continuous structures than had been originally interpreted. Hecla
thus recorded a write-down of the mine's carrying value totaling $97.0 million
in 1995 to properly reflect the net realizable value of its interest in the
Grouse Creek joint venture.
In 1996, Hecla completed metallurgical testing and economic analysis of the
Grouse deposit. Based upon this analysis, Hecla determined that ore contained
in the Grouse deposit was not economical at the then-current metals prices.
Hecla decided to suspend operations at the Grouse Creek mine following
completion of mining of the remaining ore in the Sunbeam pit. In connection
with this decision, Hecla recorded 1996 adjustments for future severance,
holding, reclamation and closure costs totaling $22.5 million, and adjustments
to the carrying value of property, plant, and equipment, and inventories
totaling $5.3 million.
In January 1997, Great Lakes and Hecla entered into a letter agreement
terminating the Grouse Creek joint venture and conveying Great Lakes'
approximate 20% interest in the project to Hecla. Great Lakes retained a 5%
defined net proceeds interest in the project. Hecla assumed 100% of the
interests and obligations associated with the property.
<PAGE> 29
Following completion of mining in the Sunbeam pit in April 1997, Hecla
placed the Grouse Creek mine on a care-and-maintenance status. Under U.S.
Forest Service agreements, the care-and-maintenance period for the property can
only extend to May 2000. However, Hecla may request a maximum of two one-year
extensions to remain in a care-and-maintenance status past the initial three-
year period. On or before May 2000, operations must either recommence, Hecla
must receive an extension on the care-and-maintenance period, or the site must
initiate final reclamation.
During the care-and-maintenance period, reclamation has been undertaken to
prevent degradation of the property. During 1997, the milling facilities were
mothballed and earthwork completed to contain and control surface waters. In
1998, an engineered cap was constructed on the waste rock storage facility and
modifications were made to the water treatment facility. In 1999, activities
included further work on the waste rock storage facility cover and continued
work controlling surface waters. Hecla increased the reclamation accrual by
$23.0 million in 1999 due to anticipated changes to the closure plan, including
increased dewatering requirements and other expenditures. The changes to the
reclamation plan at Grouse Creek were necessitated principally by the need to
dewater the tailings impoundment rather than reclaim it as a wetland as
originally planned. Hecla is currently working with federal and state
regulatory agencies on the development of an effective plan for dewatering the
tailings impoundment. The reclamation and closure cost accrual for the Grouse
Creek mine totaled $29.3 million as of December 31, 1999, although it is
possible that the estimate may change in the future.
As of December 31, 1999, there were 21 employees at the Grouse Creek mine.
The employees are not represented by a bargaining agent.
Yellow Pine - Idaho
The Yellow Pine gold mine is located in Valley County, Idaho, about 50
miles east of McCall in central Idaho, and is accessed by secondary roads and
air. The property consists of 26 patented claims which are held by Hecla under
lease from the Bradley Mining Company of San Francisco, California. The lease
provides for production royalties equal to 6% of net smelter returns plus 10% of
cumulative cash flow and also provides for a minimum royalty payment of $3,500
per month reduced by current production royalties. Production from the oxide
mineralization ceased in 1992; the operation has been undergoing reclamation
since that time. During 1998, reclamation of the mine's Homestake open pit was
completed and additional recontouring and reclamation occurred at the facility
site. Mineralized sulfide material, estimated at between 15 and 20 million tons
containing approximately 0.09 ounce of gold per ton, is also located on the
property. Hecla continues to seek other parties interested in the further
exploration and
<PAGE> 30
development of this extensive gold-bearing resource. During 1999, Hecla accrued
an additional $0.1 million for reclamation and closure costs to reflect current
estimates of remaining costs. As of December 31, 1999, Hecla's accrual for
remaining reclamation and closure totals $1.5 million. Following completion of
reclamation, approximately five years of post-reclamation monitoring will be
required.
Development Project
Noche Buena Gold Project - Sonora, Mexico
The Noche Buena project is located 44 miles northwest of Caborca, Mexico,
and 25 miles south of La Choya in the State of Sonora and is 100% owned by Hecla
through its Mexican subsidiary, Minera Hecla, S.A. de C.V. Minera Hecla
purchased the Noche Buena concessions from MXUS, S.A. de C.V., a subsidiary of
USMX, Inc., in October 1998 subsequent to acquiring an exploration option in
November 1997. There are 18,916 acres currently under concession and an
application has been filed for concessions to an additional 15,439 acres.
Through December 31, 1999, capital expenditures associated with the development
of the Noche Buena project totaled approximately $4.7 million.
During 1998 and 1999, Minera Hecla drilled 4,292 meters of core in 39 holes
and 23,432 meters of reverse circulation in 130 drill holes. In addition,
column leach tests were run, an open-pit heap-leaching operation was designed,
and an operating permit application was filed.
Noche Buena was placed on care and maintenance in August 1999. Hecla will
reconsider the status of this project when the gold price returns to a higher
level; however, there can be no assurance that Hecla will ever develop the Noche
Buena project.
Saladillo Exploration Projects - Durango, Mexico
The 222-square mile Saladillo concessions located 56 miles northeast of the
city of Durango, were acquired by Minera Hecla through Hecla's acquisition of
Monarch Resources Investments Limited. At Saladillo, soil geochemistry,
geophysics and reverse circulation drilling were used to explore three targets,
San Sebastian, Cerro Pedernalillo and Cerro Blanco, for gold and silver
mineralization.
Exploration
Hecla conducts exploration activities from its headquarters in Coeur
d'Alene, Idaho. Hecla owns or controls patented and unpatented mining claims,
fee land, mineral concessions and state and private leases in the United States,
Mexico, Venezuela and other South American countries. Hecla's strategy
regarding reserve replacement is to concentrate its efforts on (1) existing
operations where an infrastructure already exists, (2) other
<PAGE> 31
properties presently being developed and advanced-stage exploration properties
that have been identified as having potential for additional discoveries, (3)
advanced-stage exploration acquisition opportunities, and (4) grass roots
exploration opportunities. Hecla is currently concentrating its exploration
activities at the Rosebud gold mine, in which Hecla maintains a 50% interest,
the Greens Creek silver mine, in which Hecla maintains a 29.73% interest, the La
Camorra gold mine, the Saladillo property in Mexico, and other properties in
Mexico, South America and Nevada. Hecla remains active in other exploration
areas and continues to seek advanced-stage acquisition opportunities principally
in the United States and Mexico.
Mineral exploration, particularly for gold and silver, is highly
speculative in nature, involves many risks and frequently is nonproductive.
There can be no assurance that Hecla's mineral exploration efforts will be
successful. Once mineralization is discovered, it may take a number of years
from the initial phases of drilling until production is possible during which
time the economic feasibility of production may change. Substantial
expenditures are required to establish ore reserves through drilling, to
determine metallurgical processes to extract the metals from the ore and, in the
case of new properties, to construct mining and processing facilities. As a
result of these uncertainties, no assurance can be given that Hecla's
exploration programs will result in the expansion or replacement of existing ore
reserves that are being depleted by current production.
Properties are continually being added to or dropped from Hecla's inventory
as a result of exploration and acquisition activities. Exploration expenditures
for the three years ended December 31, 1999, 1998 and 1997 were approximately
$5.9 million, $4.9 million and $7.4 million, respectively. Exploration
expenditures for 2000 are estimated to be in the range of $4.0 to $4.5 million.
Hedging Activities
Hecla's policy guidelines for hedging gold, silver, lead and zinc
production permit management to utilize various hedging mechanisms and
strategies for up to 50% of Hecla's annual estimated available metal production.
Hedging contracts are restricted to no longer than 36 months without approval of
Hecla's Board of Directors and will be spread among a number of available
customers. As part of the acquisition of Monarch Resources Investments Limited
and associated project financing completed in 1999, Hecla's Board of Directors
approved a gold hedging program for the La Camorra mine totaling 306,045 gold
ounces over the period December 1999 to December 2004, at a flat forward price
of $288.25 per ounce. At December 31, 1999, Hecla had 49% of 2000 budgeted gold
production and 15% of 2000 budgeted silver production hedged utilizing forward
sales contracts. Also at December 31, 1999, 9% of Hecla's 2000 budgeted lead
production and 30% of 2000 budgeted zinc production had been hedged utilizing
<PAGE> 32
commodity swap contracts. None of the aforementioned activities have been
entered into for speculative purposes as of December 31, 1999. For additional
information regarding hedging activities, see Notes 1 and 3 of Notes to
Consolidated Financial Statements, Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations, and Item 7A Quantitative and
Qualitative Disclosure About Market Risk of this Form 10-K.
Industry Segments
Financial information with respect to industry segments is set forth in
Note 11 of Notes to the Consolidated Financial Statements.
Geographic Areas
Financial information with respect to geographic areas is set forth in Note
11 of Notes to Consolidated Financial Statements.
Competition
Hecla is engaged in the mining and processing of gold, silver, other
nonferrous metals and industrial minerals in the United States, Mexico and
Venezuela. Hecla encounters strong competition from other mining companies in
connection with the acquisition of properties producing, or capable of
producing, gold, silver and industrial minerals. Hecla also competes with other
companies both within and outside the mining industry in connection with the
recruiting and retention of qualified employees knowledgeable in mining
operations. Silver and gold are worldwide commodities and, accordingly, Hecla
sells its production at world market prices.
Hecla cannot compare sales from its ball clay mining operations with sales
of other ball clay producers because the principal competitors are either family
owned or divisions of larger, diversified companies, but Hecla believes that K-T
Clay is one of the more significant producers of ball clay in the United States.
The principal competitors of Hecla in the ball clay industry are H. C. Spinks
Clay Company, Watts Blake Bearne & Company and Old Hickory Clay Company. With
the acquisition of kaolin assets from Cyprus Minerals Company in 1989 and JM
Huber Corporation in 1995, Hecla is also an important producer in the United
States of ceramic-grade kaolin. The principal competitors of Hecla in the
kaolin industry are Albion Kaolin Company, Evans Clay Company, Wilkinson Clay
and Dixie Clay. Hecla, with the acquisition of Indusmin Incorporated's feldspar
assets, is also a major producer and supplier of sodium feldspar products. The
principal competitors of Hecla in the feldspar industry are Feldspar Corporation
and Unimin Corporation.
<PAGE> 33
Hecla competes with other producers of scoria and with manufacturers of
ceramic briquettes in the production and sale of briquettes. Hecla has limited
information as to the size of the barbecue briquette industry, but believes that
it supplies a major portion of the scoria briquettes used in gas barbecue
grills. Price and natural product characteristics, such as color, uniformity of
size, and lack of contained moisture and density are important competitive
considerations. Hecla believes that it has a significant portion of the
landscape scoria market east of the Continental Divide.
Regulation of Mining Activity
The mining operations of Hecla are subject to inspection and regulation by
the Mine Safety and Health Administration of the Department of Labor (MSHA)
under provisions of the Federal Mine Safety and Health Act of 1977. It is
Hecla's policy to comply with the directives and regulations of MSHA. In
addition, Hecla generally takes such necessary actions as, in its judgment, are
required to provide for the safety and health of its employees. MSHA directives
have had no material adverse impact on Hecla's results of operations or
financial condition and Hecla believes that it is substantially in compliance
with the regulations promulgated by MSHA.
All of Hecla's exploration, development, and production activities in the
United States, Mexico and South America are subject to regulation by
governmental agencies under one or more of the various environmental laws.
These laws address emissions to the air, discharges to water, management of
wastes, management of hazardous substances, protection of natural resources,
protection of antiquities and reclamation of lands which are disturbed. Hecla
believes that it is in substantial compliance with applicable environmental
regulations. Many of the regulations also require permits to be obtained for
Hecla's activities. These permits normally are subject to public review
processes resulting in public approval of the activity. While these laws and
regulations govern how Hecla conducts many aspects of its business, management
of Hecla does not believe that they have a material adverse effect on its
results of operations or financial condition at this time. Hecla's projects are
evaluated considering the cost and impact of environmental regulation on the
proposed activity. New laws and regulations are evaluated as they develop to
determine the impact on, and changes necessary to, Hecla's operations. It is
possible that future changes in these laws or regulations could have a
significant impact on some portion of Hecla's business, causing those activities
to be economically reevaluated at that time. Hecla believes that adequate
provision has been made for disposal of mine waste and mill tailings at all of
its operating and nonoperating properties in a manner that complies with current
federal and state environmental requirements.
<PAGE> 34
Environmental laws and regulations may also have an indirect impact on
Hecla, such as increased cost for electricity due to acid rain provisions of the
Clean Air Act Amendments of 1990. Charges by smelters to which Hecla sells its
metallic concentrates and products have substantially increased over the past
several years because of requirements that smelters meet revised environmental
quality standards. Hecla has no control over the smelters' operations or their
compliance with environmental laws and regulations. If the smelting capacity
available to Hecla was significantly reduced because of environmental
requirements or otherwise, it is possible that Hecla's silver operations could
be adversely affected.
Hecla is also subject to regulations under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (CERCLA or
Superfund), which regulates and establishes liability for the release of
hazardous substances, and the Endangered Species Act (ESA), which identifies
endangered species of plants and animals and regulates activities to protect
these species and their habitats. Revisions to CERCLA and ESA are being
considered by Congress; the impact on Hecla of these revisions is not clear at
this time.
Legislation
During the early to mid-1990s, the U.S. Congress considered a number of
proposed amendments to the General Mining Law of 1872, as amended, which governs
mining claims and related activities on federal lands. Legislation previously
introduced in Congress would have changed the current patent procedures, imposed
certain royalties on production and enacted new reclamation, environmental
controls and restoration requirements with respect to mining activities on
federal lands. The Legislation was debated in various congressional committees,
but saw limited progress. There was no significant activity with respect to
mining law reform in Congress in 1999. The extent of any such changes is not
presently known and the potential impact on Hecla as a result of congressional
action is difficult to predict. Although a majority of Hecla's existing mining
operations occur on private or patented property, the proposed changes to the
General Mining Law, if adopted, could adversely affect Hecla's ability to
economically develop mineral resources on federal lands.
Employees
As of December 31, 1999, Hecla and its subsidiaries employed 1,277 people.
Investment Considerations
The following Investment Considerations, together with other information set
forth in this Form 10-K, should be carefully considered by current and future
investors in Hecla's securities.
<PAGE> 35
Liquidity
Cash and cash equivalents at December 31, 1999 were $2.7 million. In
addition, Hecla had the ability to borrow the remaining $12.7 million under its
existing $55.0 million revolving and term loan credit facility (the Bank
Agreement). The amount available to borrow under the Bank Agreement is in part
based on a defined debt capacity calculation which is heavily reliant on the
prices for Hecla's metal products.
On March 21, 2000, Hecla received a commitment letter from a bank to
provide for a $55.0 million term loan facility due one year after funding.
Proceeds from the term loan facility will be utilized to repay amounts
outstanding under the current Bank Agreement, the revenue bonds and the
subordinated debt, as well as for general corporate purposes. The terms of the
facility include certain collateral provisions, including the pledging of the
common stock of certain of Hecla's subsidiaries and providing the lender a
security interest in certain other assets of Hecla. Interest rates are to be
based on LIBOR plus a margin of 2.25%. Funding pursuant to the commitment is
expected to occur during April 2000 upon satisfactory completion of legal
documentation.
Based upon Hecla's estimate of metals prices and metals production for
2000, Hecla currently believes that its operating cash flows, the cash proceeds
from the sale of the MWCA - Mountain West Products division which was sold on
March 15, 2000, and the proceeds from the new credit facility discussed above
will be adequate to fund the combined total of anticipated minimum capital
expenditures, idle property expenditures, exploration expenditures and Hecla's
preferred dividend requirement. Additional cash flow will be required to fund
possible expansion projects or acquisitions. Hecla is continuing to pursue the
sale of the MWCA - Colorado Aggregate Division which it anticipates completing
in the first half of 2000, is considering other asset sales, and is actively
pursuing equity offerings. Without the proceeds from the sale of MWCA -
Colorado Aggregate Division, other possible asset sales, and possible equity
offerings, Hecla may have limited resources available to fund possible expansion
projects, acquisitions or other cash requirements. There can be no assurance
that Hecla will be successful in its efforts to sell its MWCA - Colorado
Aggregate Division, completing any other possible asset sales or in its ability
to complete possible equity offerings.
Recurring Losses
Hecla has experienced net losses for each of the last nine years. For the
year ended December 31, 1999, Hecla reported a net loss of approximately $38.6
million (before a cumulative effect of a change in accounting principle of $1.4
million and preferred stock dividends of $8.1 million), or $0.62 per share of
common stock, compared to a net loss of approximately $0.3 million (before
preferred stock dividends of $8.1 million), or $0.01 per
<PAGE> 36
share of common stock, for the year ended December 31, 1998. Without
improvements in the current prices of metals, Hecla anticipates that its history
of losses applicable to common shareholders will continue. Due to the
volatility of metals prices and the significant impact metals price changes have
on Hecla's operations, there can be no assurance that Hecla will be profitable
in the future.
Metal Price Volatility
Because a significant portion of Hecla's revenues are derived from the sale
of gold, silver, lead and zinc, Hecla's earnings are directly related to the
prices of these metals. Gold, silver, lead and zinc prices fluctuate widely and
are affected by numerous factors beyond Hecla's control, including expectations
for inflation, speculative activities, the relative exchange rate of the U.S.
dollar, global and regional demand and production, political and economic
conditions and production costs in major producing regions. The aggregate
effect of these factors, all of which are beyond Hecla's control, is impossible
for Hecla to predict. If the market price for these metals falls below Hecla's
full production costs and remains at such level for any sustained period, Hecla
will experience additional losses and may determine to discontinue the
development of a project or mining at one or more of its properties. While
Hecla has periodically used limited hedging techniques to reduce a portion of
Hecla's exposure to the volatility of gold, silver, lead and zinc prices, there
can be no assurance that it will be able to do so effectively in the future (see
Hedging Activities).
The following table sets forth the average daily closing prices of the
following metals for 1980, 1985, 1990, 1994, and each year thereafter through
1999.
<TABLE>
<CAPTION>
1980 1985 1990 1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gold(1)
(per oz.) $ 612.56 $ 317.26 $ 383.46 $ 384.01 $ 384.16 $ 387.70 $ 331.10 $ 294.16 $ 278.77
Silver(2)
(per oz.) 20.63 6.14 4.82 5.28 5.19 5.18 4.90 5.53 5.25
Lead(3)
(per lb.) 0.41 0.18 0.37 0.25 0.29 0.35 0.28 0.24 0.23
Zinc(4)
(per lb.) 0.34 0.36 0.69 0.45 0.47 0.46 0.60 0.46 0.49
--------------------
(1) London Final.
(2) Handy & Harman.
(3) London Metals Exchange -- Cash.
(4) London Metals Exchange -- Special High Grade -- Cash.
</TABLE>
On March 15, 2000, the closing prices for gold, silver, lead and zinc were
$289.15 per ounce, $5.17 per ounce, $0.20 per pound, and $0.51 per pound,
respectively.
<PAGE> 37
Volatility of Metals Production
Hecla's future gold and silver production will be dependent upon Hecla's
success in developing new reserves as well as exploration efforts (see Project
Development Risks and Exploration). If metals prices continue to decline, Hecla
could determine that it is not economically feasible to continue development of
a project or continue commercial production at some of its properties (see Metal
Price Volatility).
Project Development Risks
Hecla, from time to time, engages in the development of new orebodies, both
at newly acquired properties and presently existing mining operations
(collectively "Development Projects"). Hecla's ability to sustain or increase
its present level of metals production is dependent in part on the successful
development of such new orebodies and/or expansion of existing mining
operations. The economic feasibility of any individual Development Project and
all such Development Projects collectively is based upon, among other things,
estimates of reserves, metallurgical recoveries, and capital and operating costs
of such Development Projects, and future metal prices. Development Projects are
also subject to the successful completion of feasibility studies, issuance of
necessary permits and receipt of adequate financing.
Development Projects may have no operating history upon which to base
estimates of future operating costs and capital requirements. Particularly for
Development Projects, estimates of reserves, metal recoveries and cash operating
costs are to a large extent based upon the interpretation of geologic data
obtained from a finite number of drill holes and other sampling techniques and
feasibility studies. Estimates of cash operating costs are then derived based
upon anticipated tonnage and grades of ore to be mined and processed, the
configuration of the orebody, expected recovery rates of metals from the ore,
comparable facility and equipment costs, anticipated climate conditions and
other factors. As a result, it is possible that actual cash operating costs and
economic returns of any and all Development Projects may materially differ from
the costs and returns estimated.
Reserves
The ore reserve figures presented in this Form 10-K and in Hecla's other
SEC filings are, in large part, estimates made by Hecla's technical personnel,
and no assurance can be given that the indicated level of recovery of these
metals will be realized. Reserves estimated for properties that have not yet
commenced production may require revision based on actual production experience.
Market price fluctuations of the various metals mined by Hecla, as well as
increased production costs or reduced recovery rates, may render ore reserves
containing relatively lower grades of mineralization uneconomic and may
ultimately result in a restatement of reserves. Moreover, short-term
<PAGE> 38
operating factors relating to the ore reserves, such as the need for sequential
development of orebodies and the processing of new or different ore grades, may
adversely affect Hecla's profitability in any particular accounting period.
The metals prices used to determine ore reserves at a particular mine are
typically estimated by the entity managing the mine. These metals prices may
vary depending on each entity's assessment of metals prices over the near term
and other factors that such entity believes relevant. Hecla estimates metals
prices for its ore reserve calculations, which approximate current market
prices, but these metals prices may vary from current market prices based on a
number of factors Hecla believes likely to influence metals prices over the near
term. For Proven and Probable ore reserve assumptions, including assumed metals
prices, see Glossary of Certain Mining Terms.
Declines in the market price of metals may also render ore reserves
containing relatively lower grades of mineralization uneconomic to exploit
unless the utilization of forward sales contracts or other hedging techniques is
sufficient to offset the effects of a drop in the market price of the metals
expected to be mined from such reserves. If Hecla's realized price for the
metals it produces, including hedging benefits, were to decline substantially
below the levels set for calculation of reserves for an extended period, there
could be material delays in the development of new projects, increased net
losses, reduced cash flow, reductions in reserves and asset write-downs.
Joint Development and Operating Arrangements
The Greens Creek mine is operated through a joint venture arrangement, and
Hecla owns an undivided interest in the assets of the venture. Hecla's Rosebud
mine is operated through a Limited Liability Company (LLC) with Hecla holding
50% of the interest in the LLC. The LLC arrangement operates similar to joint
venture arrangements. Under the joint venture and LLC agreements, the joint
participants, including Hecla, are entitled to indemnification from the other
participants and are severally liable only for the liabilities of the
participants in proportion to their interest therein. If a participant defaults
on its obligations under the terms of a joint venture or LLC agreement
(including as a result of insolvency), Hecla could incur losses in excess of its
pro-rata share of the joint venture. In the event any participant so defaults,
each agreement provides certain rights and remedies to the remaining
participants. These include the right to force a dilution of the percentage
interest of the defaulting participant and the right to utilize the proceeds
from the sale of the defaulting parties' share of products, or its joint venture
interest in the properties, to satisfy the obligations of the defaulting
participant. Based on the information available to Hecla, Hecla has no reason
to believe that its joint venture or LLC participants with respect to the Greens
Creek and Rosebud properties will be unable to meet their financial obligations
under the terms of the respective agreements.
<PAGE> 39
Competition for Properties
Because mines have limited lives based on proven ore reserves, Hecla is
continually seeking to replace and expand its reserves. Hecla encounters strong
competition from other mining companies in connection with the acquisition of
properties producing or capable of producing gold, silver, lead, zinc and
industrial minerals. As a result of this competition, some of which is with
companies with greater financial resources than Hecla, Hecla may be unable to
acquire attractive mining properties on terms it considers acceptable. In
addition, there are a number of uncertainties inherent in any program relating
to the location of economic ore reserves, the development of appropriate
metallurgical processes, the receipt of necessary governmental permits and the
construction of mining and processing facilities. Accordingly, there can be no
assurance that Hecla's programs will yield new reserves to replace and expand
current reserves.
Title to Properties
The validity of unpatented mining claims, which constitute a significant
portion of Hecla's undeveloped property holdings in the United States, is often
uncertain and may be contested. Although Hecla has attempted to acquire
satisfactory title to its undeveloped properties, Hecla, in accordance with
mining industry practice, does not generally obtain title opinions until a
decision is made to develop a property, with the attendant risk that some
titles, particularly titles to undeveloped properties, may be defective.
Mining Risks and Insurance
The business of mining is generally subject to a num-ber of risks and
hazards, including environmental hazards, political and country risks,
industrial accidents, labor disputes, encountering unusual or unexpected
geologic formations, cave-ins, rockbursts, flooding and periodic interruptions
due to inclement or hazardous weather conditions. Such risks could result in
damage to, or destruction of, mineral properties or producing facilities,
personal injury, environmental damage, delays in mining, monetary losses and
possible legal liability. Although Hecla maintains insurance within ranges of
coverage it believes to be consistent with industry practice, no assurance can
be given that such insurance will be available at economically feasible
premiums. Insurance against environmental risks (including potential for
pollution or other hazards as a result of disposal waste products occurring from
exploration and production) is not generally available at economical terms to
Hecla or to other companies within the industry. To the extent Hecla is subject
to environmental liabilities, the payment of such liabilities would reduce the
funds available to Hecla. Should Hecla be unable to fund fully the cost of
remedying an environmental problem, Hecla might be required to suspend
operations or enter into interim compliance measures pending completion of the
required remedy.
<PAGE> 40
Foreign Operations
Hecla's La Choya gold mine is located in Sonora, Mexico, and Hecla's K-T
Mexico clay slurry plant is located, Monterrey, Mexico. Additionally, Hecla's
La Camorra gold mine is located in Bolivar State, Venezuela. Hecla also has
exploration projects and mining investments in Mexico, Canada and South America.
Such projects and investments could be adversely affected by exchange controls,
currency fluctuations, political risks, taxation and laws or policies of either
foreign countries or the United States affecting foreign trade, investment and
taxation, which, in turn, could affect Hecla's current or future foreign
operations.
Hedging Activities
Hedging activities are intended to minimize the effect of declines in
metals prices on results of operations for a period of time. Although hedging
activities may protect a company against low metals prices, it may also limit
the price that can be received on hedged products, subject to forward sales and
certain options contracts, potentially resulting in Hecla foregoing the
realization of revenues to the extent the market prices of metals exceed the
related metals price in a forward sale or certain options contracts. Hecla is
exposed to certain losses, generally the amount by which the contract price
exceeds the spot price of a commodity, in the event of nonperformance by the
counterparties to these agreements.
Environmental Liabilities
Reserves for closure costs, reclamation and environmental matters totaled
$49.3 million and $29.8 million at December 31, 1999 and 1998, respectively.
Hecla anticipates that expenditures relating to these reserves will be made over
the next several years.
Future closure, reclamation and environment-related expenditures are
difficult to estimate in many circumstances due to the early stages of
investigation, the uncertainties relating to specific reclamation and
remediation methods and costs, the possible participation of other potentially
responsible parties and changing environmental laws, regulations and
interpretations. It is possible that changes to estimates of future closure,
reclamation and environmental contingencies could have a material effect on
future operating results as new information becomes known.
<PAGE> 41
Glossary of Certain Mining Terms
Ball Clay -- A fine-grained, plastic, white firing clay used principally
for bonding in ceramic ware.
Cash Operating Costs -- Includes all direct and indirect operating cash
costs incurred at each operating mine, excluding royalties and mine
production taxes.
Cash Operating Costs Per Ounce -- Calculated based upon cash operating
costs, as defined herein, net of by-product revenues from all metals other
than the primary metal produced at each mine, divided by the total ounces
of the primary metal produced.
Decline -- An underground passageway connecting one or more levels in a
mine, providing adequate traction for heavy, self-propelled equipment.
Such underground openings are often driven in an upward or downward spiral,
much the same as a spiral staircase.
Development -- Work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
Dilution -- The amount of waste which must be mined along with the ore in
order to obtain the ore.
Dore' -- Unrefined gold and silver bullion bars consisting of approximately
90% precious metals which will be further refined to almost pure metal.
Exploration -- The searching for ore, usually by geological surveys,
geophysical prospecting, drilling, surface or underground headings, drifts,
or tunnels.
Feldspar -- A crystalline mineral consisting of aluminum silicates and
other elements that is an essential ingredient for the ceramics industry,
and also is used in the glass and paint industries.
Grade -- The average assay of a ton of ore, reflecting metal content.
Heap Leaching -- A process involving the percolation of a cyanide solution
through crushed ore heaped on an impervious pad or base to dissolve
minerals or metals out of the ore.
Hectares -- Equivalent to 2.47 acres.
Kaolin -- Also known as china clay, kaolin is a white alumina-silicate clay
used in porcelain, paper, plastics, rubber, paints and many other products.
<PAGE> 42
Mill -- A processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be
treated in some other type of plant, such as a smelter, to effect recovery
of the pure metal.
Mineral-Bearing Material -- Material for which quantitative estimates are
based on inferences from known mineralization, or on drill-hole samples too
few in number to allow for classification as Probable ore reserves.
Mineralization - The process by which a mineral or minerals are introduced
into a rock, resulting in a valuable deposit.
Ore -- A mixture of valuable minerals and gangue (valueless minerals) from
which at least one of the minerals or metals can be extracted at a profit.
Orebody -- A continuous, well-defined mass of material of sufficient ore
content to make extraction economically feasible.
Patented Mining Claim -- A parcel of land originally located on federal
lands as an unpatented mining claim under the General Mining Law, the title
of which has been conveyed from the federal government to a private party
pursuant to the patenting requirements of the General Mining Law.
Proven and Probable Ore Reserves -- Reserves that reflect estimates of the
quantities and grades of mineralized material at Hecla's mines which Hecla
believes can be recovered and sold at prices in excess of the total cash
cost associated with extracting and processing the ore. The estimates are
based largely on current costs and on projected prices and demand for
Hecla's products. Mineral reserves are stated separately for each of
Hecla's mines based upon factors relevant to each mine. Reserves represent
diluted in-place grades and do not reflect losses in the recovery process.
Hecla's estimates of Proven and Probable reserves for the Lucky Friday
mine, the Rosebud mine, the La Camorra mine and the La Choya mine at
December 31, 1999 and 1998 are based on gold prices of $325 and $350 per
ounce, silver prices of $5.50 and $5.50 per ounce, lead prices of $0.25 and
$0.26 per pound, and zinc prices of $0.55 and $0.55 per pound,
respectively. Proven and Probable ore reserves for the Greens Creek mine
are based on calculations of reserves provided to Hecla by the operator of
Greens Creek that have been reviewed but not independently confirmed by
Hecla. Kennecott Greens Creek Mining Company's estimates of Proven and
Probable ore reserves for the Greens Creek mine as of December 1999 and
1998 are derived from successive generations of reserve and feasibility
analyses for different areas of the mine each using a separate assessment
of metal prices. The weighted-average prices used were:
<PAGE> 43
December 31, December 31,
1999 1998
------------- -------------
Gold $ 307 $ 327
Silver 5.11 5.11
Lead 0.27 0.29
Zinc 0.56 0.56
Changes in reserves represent general indicators of the results of efforts
to develop additional reserves as existing reserves are depleted through
production. Grades of ore fed to process may be different from stated
reserve grades because of variation in grades in areas mined from time to
time, mining dilution and other factors. Reserves should not be
interpreted as assurances of mine life or of the profitability of current
or future operations.
Probable Reserves -- Reserves for which quantity and grade and/or quality
are computed from information similar to that used for Proven reserves, but
the sites for inspection, sampling and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower
than that for Proven reserves, is high enough to assume continuity between
points of observation.
Proven Reserves -- Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade
and/or quality are computed from the results of detailed sampling and (b)
the sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well-defined that size, shape, depth and
mineral content of reserves are well-established.
Reclamation -- The process of returning the land to another productive use
after mining has been completed.
Remediation -- In the context of superfund or the hazardous waste law,
relates to those actions taken to investigate, prevent or minimize the
effects or potential effects on human health or the environment of a
release or threatened release of a hazardous substance.
Reserves -- That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "ore" when dealing with
metalliferous minerals.
Rockburst -- Explosive rock failures caused by the pressure exerted by rock
adjacent to mine openings far below the surface.
<PAGE> 44
Sand Fill -- The coarser fraction of concentrator tailings, which is
conveyed as a slurry in underground pipes to support cavities left by
extraction of ore.
Shaft -- A vertical or steeply inclined excavation for the purpose of
opening and servicing a mine. It is usually equipped with a hoist at the
top which lowers and raises a conveyance for handling personnel and
materials.
Stope -- An underground excavation from which ore has been extracted either
above or below mine level.
Total Cash Costs -- Includes all direct and indirect operating cash costs
incurred at each operating mine.
Total Cash Costs Per Ounce -- Calculated based upon total cash costs, as
defined herein, net of by-product revenues from all metals other than the
primary metal produced at each mine, divided by the total ounces of the
primary metal produced.
Total Production Costs -- Includes total cash costs, as defined, plus
depreciation, depletion, amortization, and reclamation accruals relating to
each operating mine.
Total Production Costs Per Ounce -- Calculated based upon total production
costs, as defined, net of by-product revenues earned from all metals other
than the primary metal produced at each mine, divided by the total ounces
of the primary metal produced.
Troy Ounce -- Unit of weight measurement used for all precious metals. The
familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
Underhand Mining -- The primary mining method employed in the Lucky Friday
mine utilizing mechanized equipment, a ramp system and cemented sand fill.
The method has proven effective in reducing mining costs and rockburst
activity.
Unpatented Mining Claim -- A parcel of property located on federal lands
pursuant to the General Mining Law and the requirements of the state in
which the unpatented claim is located, the paramount title of which remains
with the federal government. The holder of a valid, unpatented lode-mining
claim is granted certain rights including the right to explore and mine
such claim under the General Mining Law.
Vein -- A mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
Waste -- Barren rock in a mine, or mineralized material that is too low in
grade to be mined and milled at a profit.
<PAGE> 45
Item 2. Properties.
Hecla's principal mineral properties are described in Item 1 above. Hecla
also has interests in a number of other mineral properties in the United States,
Mexico and South America. Although some of such properties are known or
believed to contain significant quantities of mineralization, they are not
considered material to Hecla's operations at the present time. Encouraging
results from further exploration or increases in the market prices of certain
metals could, in the future, make such properties considerably more important to
the business of Hecla taken as a whole.
The general corporate office of Hecla is located in Coeur d'Alene, Idaho,
on a tract of land containing approximately 13 acres. Hecla also owns and has
subdivided approximately 22 adjacent acres presently held for sale.
The administrative office of Hecla's ball clay, kaolin and feldspar
operations is located in Nashville, Tennessee. Additionally, there are general
offices and laboratory facilities at each operating location. Hecla also owns
approximately 1,600 acres of land principally for use in connection with milling
and storage operations for the industrial minerals operations. The
administrative office of K-T Clay de Mexico is located with the clay slurry
processing facility on a parcel of land near Monterrey, Mexico.
Hecla believes that its existing facilities are sufficient for their
intended purposes.
Item 3. Legal Proceedings.
Contingencies
- - Bunker Hill Superfund Site
In 1994, Hecla, as a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA),
entered into a consent decree with the Environmental Protection Agency (EPA) and
the state of Idaho, concerning environmental remediation obligations at the
Bunker Hill Superfund site located at Kellogg, Idaho. The consent decree
settled Hecla's response-cost liability under CERCLA at the Bunker Hill site.
As of December 31, 1999, Hecla has estimated and accrued an allowance for
liability for remedial activity costs at the Bunker Hill site of $7.5 million.
These estimated expenditures are anticipated to be made over the next three to
five years. Although Hecla believes the allowance is adequate based upon
current estimates of aggregate costs, Hecla will reassess its obligations under
the consent decree as new information is developed. Depending on the results of
any reassessment, it is reasonably possible that Hecla's estimate of its
obligations may change in the near term.
<PAGE> 46
- - Coeur d'Alene River Basin Natural Resource Damage Claims
- Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under
CERCLA, in Idaho Federal District Court against Hecla and a number of other
mining companies asserting claims for damages to natural resources downstream
from the Bunker Hill site over which the tribe alleges some ownership or
control. Hecla answered the Tribe's complaint denying liability for natural
resource damages. In October 1996, following a court imposed four-year
suspension of the proceeding, the Tribe's natural resource damage litigation was
consolidated with the United States Natural Resources Damage litigation
described below for discovery and other limited pretrial purposes.
- U.S. Government Claims
In March 1996, the United States filed a lawsuit in Idaho Federal District
Court against certain mining companies that conducted historic mining operations
in the Silver Valley of northern Idaho, including Hecla. The lawsuit asserts
claims under CERCLA and the Clean Water Act and seeks recovery for alleged
damages to or loss of natural resources located in the Coeur d'Alene River Basin
in northern Idaho for which the United States asserts to be the trustee under
CERCLA. The lawsuit asserts that the defendants' historic mining activity
resulted in releases of hazardous substances and damaged natural resources
within the Basin. The suit also seeks declaratory relief that Hecla and other
defendants are jointly and severally liable for response costs under CERCLA for
historic mining impacts in the Basin outside the Bunker Hill site. Hecla
answered the complaint in May 1996, denying liability to the United States under
CERCLA and the Clean Water Act and asserted a counterclaim against the United
States for the federal government's involvement in mining activities in the
Basin which contributed to the releases and damages alleged by the United
States. Hecla believes it also has a number of defenses to the United States'
claims.
In May 1998, the EPA announced that it had commenced a remedial
investigation/feasibility study under CERCLA for the entire Basin, including
Lake Coeur d'Alene, in support of its response cost claims asserted in its March
1996 lawsuit.
On September 30, 1998, the Federal District Court granted Hecla's summary
judgment motion with respect to the applicable statute of limitations and
dismissed the United States' natural resources damage claims due to the failure
of the EPA to comply with federal law and EPA regulations in expanding the
national priority list site boundaries to include the entire Coeur d'Alene
River/Lake Coeur d'Alene Basin which would have the effect of extending the
statute of limitations. The United States has appealed the Federal District
Court's decision to the Ninth Circuit Court of Appeals. The Federal District
Court case is
<PAGE> 47
proceeding through discovery. On March 31, 1999, the court issued a case
management order setting trial in this case for November 2000. On September 30,
1999, the court issued an order on one of the defendant's challenge to the
constitutionality of the retroactive application of liability under CERCLA.
Although the court held that the statute did not facially violate the due
process or taking clauses of the U.S. Constitution, the court also stated that
the constitutionality of retroactive application of liability to the defendants
in this case cannot be resolved at this stage of litigation as genuine issues of
material fact exist and liability has not been established.
- - Insurance Coverage Litigation
In 1991, Hecla initiated litigation in the Idaho State District Court in
Kootenai County, Idaho, against a number of insurance companies which provided
comprehensive general liability insurance coverage to Hecla and its
predecessors. Hecla believes that the insurance companies have a duty to defend
and indemnify Hecla under their policies of insurance for all liabilities and
claims asserted against Hecla by the EPA and the tribe under CERCLA related to
the Bunker Hill site and the Basin in northern Idaho. In 1992, the Idaho State
District Court ruled that the primary insurance companies had a duty to defend
Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into
settlement agreements with a number of the insurance carriers named in the
litigation. Hecla has received a total of approximately $7.2 million under the
terms of the settlement agreements. Thirty percent of these settlements were
paid to the EPA to reimburse the U.S. government for past costs under the Bunker
Hill site consent decree. Litigation is still pending against one insurer with
trial suspended until the underlying environmental claims against Hecla are
resolved or settled. The remaining insurer in the litigation with a second
insurer not named in the litigation are providing Hecla with a partial defense
in all Basin environmental litigation. As of December 31, 1999, Hecla had not
reduced its accrual for reclamation and closure costs to reflect the receipt of
any anticipated insurance proceeds.
- - Other Claims
In 1997, Hecla's subsidiary, Kentucky-Tennessee Clay, terminated shipments
of 1% of annual ball clay production, sold to animal feed producers, when the
Food and Drug Administration determined trace elements of dioxin were present in
poultry. Dioxin is inherently present in ball clays generally. Hecla believes
$11.0 million of insurance coverage is available for approximately $9.2 million
in claims to date. On September 22, 1999, Riceland Foods (the primary purchaser
of ball clay from K-T Clay used in animal feed) commenced litigation against K-T
Clay in State Court in Arkansas to recover their losses and their insurance
company's payments to downstream users of their animal feed. The complaint
alleges negligence, strict liability and
<PAGE> 48
breach of implied warranties. Legal counsel retained by the insurance company
for K-T Clay has had the case removed to Federal Court in Arkansas and has
answered the complaint denying liability. Although the outcome of the
litigation or insurance coverage cannot be assured, Hecla believes that there
will be no material adverse effect on Hecla's results of operations, financial
condition or cash flows from this matter.
On October 22, 1998, Hecla, certain affiliates, and contractors were served
with a lawsuit filed in Superior Court of Kern County, California. The
complaint pertains to the prior operations at the now shut-down Cactus Gold mine
located near Mojave, California. The plaintiffs allege that during the period
from 1960 through the present, the named defendants' operations and activities
caused personal injury and property damage to the plaintiffs. The plaintiffs
seek monetary damages for general negligence, nuisance, trespass, statutory
violations, ultrahazardous activities, strict liability and other torts. Hecla
has provided notice and demand for defense/indemnity to its insurance carriers
providing liability insurance coverage for the Cactus Gold mine operation. One
carrier has agreed to provide a partial defense of the litigation costs. Hecla
has retained outside counsel to defend Hecla. Based on a prior health risk
assessment completed for the operation as required by the state of California
and information obtained from the plaintiffs in early discovery in the
litigation, Hecla believes the allegations are without merit. In addition,
legal counsel for plaintiffs have filed voluntary dismissals on behalf of a
portion of the plaintiffs named in the litigation.
Hecla is subject to other legal proceedings and claims which have arisen in
the ordinary course of its business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate disposition of these
matters and the proceedings disclosed above, it is the opinion of Hecla's
management that the outcome of these matters will not have a material adverse
effect on the financial condition of Hecla. However, it is possible that these
matters could have a material effect on quarterly or annual operating results
and cash flows, when they are resolved, in future periods.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE> 49
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
(a) (i) Shares of the Common Stock are traded on the New York
Stock Exchange, Inc., New York, New York.
(ii) The price range of the Common Stock on the New York
Stock Exchange for the past two years was as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1999 - High $ 4.38 $ 3.25 $ 3.38 $ 3.13
- Low 2.50 2.06 1.94 1.50
1998 - High $ 6.69 $ 7.13 $ 5.31 $ 5.25
- Low 4.44 4.81 3.19 3.50
(b) As of December 31, 1999, there were 9,714 holders of record
of the Common Stock.
(c) There were no Common Stock cash dividends paid in 1999 or
1998. The amount and frequency of cash dividends are
significantly influenced by metals prices, operating results
and Hecla's cash requirements.
<PAGE> 50
Item 6. Selected Financial Data.
(dollars in thousands except for per share amounts)
<TABLE>
<CAPTION> Years Ended December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue $168,677 $165,148 $168,569 $166,882 $ 159,704
======== ======== ======== ======== =========
Net loss $(39,990) $ (300) $ (483) $(32,354) $(101,719)
Preferred stock dividends (8,050) (8,050) (8,050) (8,050) (8,050)
-------- -------- -------- -------- ---------
Loss applicable to
common shareholders $(48,040) $ (8,350) $ (8,533) $(40,404) $(109,769)
======== ======== ======== ======== =========
Basic and diluted loss per
common share $ (0.77) $ (0.15) $ (0.16) $ (0.79) $ (2.28)
======== ======== ======== ======== =========
Total assets $268,357 $252,062 $250,668 $268,393 $ 258,190
======== ======== ======== ======== =========
Long-term debt - Notes and
contracts payable $ 55,095 $ 42,923 $ 22,136 $ 38,208 $ 36,104
======== ======== ======== ======== =========
Cash dividends per common
share $ - - $ - - $ - - $ - - $ - -
======== ======== ======== ======== =========
Cash dividends per preferred
share $ 3.50 $ 3.50 $ 3.50 $ 3.50 $ 3.50
======== ======== ======== ======== =========
Common shares issued 66,844,575 55,166,728 55,156,324 51,199,324 48,317,324
Shareholders of record 9,714 10,162 10,636 11,299 12,210
Employees 1,277 1,184 1,202 1,254 1,259
</TABLE>
<PAGE> 51
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.(1)
Introduction
Hecla Mining Company is involved in the exploration, development, mining
and processing of gold, silver, lead, zinc and industrial minerals. Hecla's
gold and silver segment revenues and profitability are strongly influenced by
world prices of gold, silver, lead and zinc, which fluctuate widely and are
affected by numerous factors beyond Hecla's control, including inflation and
worldwide forces of supply and demand for precious and base metals. The
aggregate effect of these factors is not possible to accurately predict. In the
current metals price environment, Hecla's industrial minerals segment has been a
significant contributor to overall revenues, providing 55% of total revenue in
1999. In the following descriptions, where there are changes that are
attributable to more than one factor, Hecla presents each attribute in
descending order relative to the attribute's importance to the overall change.
Except for the historical information contained in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
matters discussed below are forward-looking statements that involve risks and
uncertainties, including:
- the timely development of existing properties and reserves and future
projects,
- the impact of metal prices and metal production volatility,
- changing market conditions and the regulatory environment, and
- other risks detailed below and elsewhere in this Form 10-K (see also
"Investment Considerations" of Part I, Item 1 of this Form 10-K).
As a result of the above factors and potentially others, actual results may
differ materially from those projected, forecasted or implied. These forward-
looking statements represent Hecla's judgment as of the date of this filing.
Hecla disclaims, however, any intent or obligation to update these forward-
looking statements as circumstances may change or develop.
- -----------------------
1 For definitions of certain mining terms used in this descrip-tion, see
"Glossary of Certain Mining Terms" at the end of Item 1, of this Form 10-K, page
38.
<PAGE> 52
On June 25, 1999, Hecla completed its acquisition of Monarch Resources
Investments Limited, or MRIL, which was treated as a purchase for financial
statement and accounting purposes. The $25.0 million purchase price consisted
of $9.0 million in cash and 6,700,250 Hecla common shares. In addition, MRIL's
seller, Monarch Resources Limited, will receive a royalty payment on future
production from purchased assets that exceed the current resource. MRIL's
significant assets include the La Camorra gold mine in Venezuela and the
Saladillo silver exploration property in Mexico. Following the acquisition,
Hecla temporarily suspended production at the La Camorra mine to construct a new
tailings impoundment and to perform additional mine development. Production at
La Camorra resumed in October 1999. In order to finance the acquisition and
anticipated capital expenditures at La Camorra, a nonrecourse project-financed
credit facility was secured for $11.0 million, of which $10.5 million had been
advanced as of December 31, 1999. In addition, $3.0 million was borrowed under
a subordinate note to fund the acquisition.
During 1999, Hecla produced approximately 110,000 ounces of gold compared
to approximately 127,000 ounces in 1998. The following table displays the
actual gold production (in ounces) by operation for the years ended December 31,
1998 and 1999 and projected gold production for the year ending December 31,
2000:
Actual Actual Projected
Dec. 31, Dec. 31, Dec. 31,
Operation 1998 1999 2000
- --------- -------- -------- ---------------
Rosebud 65,000 56,000 26,000-29,000
Greens Creek 18,000 24,000 20,000-22,000
La Camorra (1) - - 17,000 70,000-79,000
La Choya (2) 40,000 12,000 1,000
Other sources 4,000 1,000 1,000
-------- ------- ---------------
Totals 127,000 110,000 118,000-132,000
======== ======= ===============
(1)Production commenced under Hecla's ownership in October 1999 at the
La Camorra mine.
(2)Mining at La Choya was completed in December 1998. Gold production
in 1999 and 2000 is from residual recoveries from the heap leach pads.
In 1999, Hecla produced approximately 7.6 million ounces of silver compared
to approximately 7.2 million ounces in 1998. The following table displays the
actual silver production (in ounces) by operation for the years ended December
31, 1998 and 1999 and projected silver production for the year ending December
31, 2000 (in thousands):
<PAGE> 53
Actual Actual Projected
Dec. 31, Dec. 31, Dec. 31,
Operation 1998 1999 2000
- --------- -------- -------- ------------
Lucky Friday 4,137 4,441 4,750-5,000
Greens Creek 2,824 3,051 2,650-2,800
Rosebud 278 124 50-60
Other sources 6 1 - -
-------- -------- -------------
Totals 7,245 7,617 7,450-7,860
======== ======== =============
In 1999, Hecla's shipments from the Kentucky-Tennessee Clay group, which
included ball clay, kaolin and feldspar, increased to approximately 1,072,000
tons from 1,005,000 tons of product in 1998. Hecla's shipments of industrial
minerals from the Kentucky-Tennessee Clay group are expected to increase to
approximately 1,086,000 tons in 2000. During 1999, Hecla also shipped
approximately 82,000 tons of specialty aggregates from the Colorado Aggregate
division of its subsidiary MWCA, and approximately 1,091,000 cubic yards of
landscape material from the Mountain West Products division of MWCA. In order
to provide funds for possible metals and other industrial minerals expansion, as
well as to reduce indebtedness, Hecla decided to sell MWCA. Based on the
estimated sales price for the two divisions of MWCA, Hecla recorded an
adjustment in 1999 totaling $4.4 million to write down the book value of MWCA in
excess of the anticipated sales price. Hecla completed a sales transaction for
the Mountain West Products division of MWCA in March 2000. The Colorado
Aggregate division is expected to close later in 2000, although there can be no
assurance that the sales transaction will be completed.
Results of Operations
- ---------------------
1999 Compared to 1998
- ---------------------
Hecla recorded a net loss, before the cumulative effect of a change in
accounting principle and preferred stock dividend, of approximately $38.6
million, or $0.62 per common share, in 1999 compared to a net loss of
approximately $0.3 million, or $0.01 per common share, in 1998. After
recognizing a $1.4 million charge from an accounting change to write off
unamortized start-up costs associated with the Greens Creek mine, and after $8.1
million in dividends to holders of Hecla's Series B Cumulative Convertible
Preferred Stock, Hecla's loss applicable to common shareholders for 1999 was
approximately $48.0 million, or $0.77 per common share, compared to a loss of
$8.4 million, or $0.15 per common share, in 1998. The increased loss in 1999
compared to 1998 was due to a variety of factors, the most significant of
<PAGE> 54
which were 1999 environmental and reclamation accruals totaling $27.3 million
for future environmental and reclamation expenditures at the Grouse Creek mine
and the Bunker Hill Superfund site and asset write-downs totaling $4.7 million,
principally for the write-down of MWCA.
Sales of products increased by approximately $4.4 million, or 3%, in 1999
as compared to 1998 primarily due to:
- increased sales totaling approximately $7.8 million from silver
operations primarily as a result of increased production and shipments
at the Lucky Friday and Greens Creek mines,
- increased sales totaling approximately $5.8 million from Hecla's
industrial minerals segment principally the result of increased
shipments at the K-T Clay group and the MWCA-Mountain West Products
division, and
- decreased sales of $9.2 million from gold operations principally
a result of completion of mining operations at the La Choya mine in
December 1998, lower gold production in 1999 at the Rosebud mine, and
a lower gold price in 1999, partly offset by increased sales from the
La Camorra mine acquired in 1999.
The following table compares the average metal prices for 1999 with 1998:
Metal 1999 1998 $ Change % Change
--------------------------- ------ ------ -------- --------
Gold-Realized ($/oz) $ 286 $ 301 $ (15) (5.0)%
Gold-London Final ($/oz) 279 294 (15) (5.1)
Silver-Handy & Harman ($/oz) 5.25 5.53 (0.28) (5.1)
Lead-LME Cash (cents/pound) 0.228 0.240 (0.012) (5.0)
Zinc-LME Cash (cents/pound) 0.488 0.465 0.023 4.9
Cost of sales and other direct production costs increased approximately
$1.6 million from $127.9 million in 1998 to $129.5 million in 1999, primarily
due to:
- increased cost of sales at the La Camorra mine ($3.9 million) in 1999
as a result of Hecla's purchase of La Camorra in June 1999,
- increased cost of sales at the Lucky Friday mine ($3.5 million, or
18%) due to an 18% increase in tons milled,
- increased cost of sales at the industrial minerals segment ($1.9
million, or 3%) associated with increased sales of $5.8 million, or
7%,
<PAGE> 55
- decreased cost of sales at the La Choya mine ($5.7 million) due to the
completion of mining in December 1998,
- decreased cost of sales at the Rosebud mine ($0.8 million) due to
decreased tons mined and milled,
- elimination of cost of sales at the American Girl mine ($0.8 million)
due to final gold sales in 1998, and
- decreased cost of sales at the Greens Creek mine ($0.5 million)
principally due to the timing of concentrate shipments.
Cost of sales and other direct production costs as a percentage of sales
decreased from 80.3% in 1998 to 79.1% in 1999. The decrease was principally a
result of improved margins in the silver and industrial minerals segments,
partly offset by decreased margins in the gold segment.
Depreciation, depletion and amortization increased $1.2 million, or 5%,
from 1998 to 1999 principally due to:
- increased depreciation at the La Camorra mine ($0.9 million) as a
result of Hecla's purchase of La Camorra in June 1999,
- increased depreciation at the Greens Creek mine ($0.7 million) due to
increased production in the 1999 period,
- increased depreciation at the Lucky Friday mine ($0.6 million) due to
increased production in the 1999 period, and
- decreased depreciation at the Rosebud mine ($0.8 million) due to
decreased gold production in the 1999 period.
Exploration expense increased $1.1 million, or 22%, during 1999 as compared
to 1998 principally due to increased expenditures in Mexico ($1.5 million),
primarily at the Saladillo property acquired by Hecla in the MRIL purchase, and
at the Rosebud mine ($0.4 million). These increases were partly offset by
decreased expenditures at other South American targets ($0.8 million).
Interest and other income decreased approximately $0.8 million, from $5.9
million in the 1998 period to $5.1 million in 1999. The decrease in 1999 was
principally the result of decreased gains on sale of land located near Hecla's
corporate headquarters in Coeur d'Alene, Idaho of $2.3 million, partly offset by
a $1.3 million gain on the sale of the corporate airplane in 1999.
<PAGE> 56
Gain on investments decreased $1.2 million from a gain in 1998 of $1.1
million to a loss in 1999 of $0.1 million. The gain in 1998 was primarily a
result of the sale of Metaline Contact Mine stock which was nonrecurring in
1999.
Interest expense, net of amounts capitalized, increased $2.3 million in
1999 as compared to the same period in 1998. The increase was the result of
decreased capitalized interest of $0.9 million, associated with the Lucky Friday
expansion project in 1998, interest and fees associated with project financing
and subordinated debt utilized for the acquisition of Monarch ($0.7 million),
and increased interest expense under Hecla's revolving bank loan ($0.6 million)
as a result of higher borrowings.
Income tax benefit decreased approximately $0.6 million, from $0.9 million
in 1998 to $0.3 million in the 1999 period. The decreased benefit primarily
related to the carryback of certain 1998 expenditures to reduce U.S. income
taxes previously provided.
The cumulative effect of change in accounting principle totaled $1.4
million in 1999, due to the write off of unamortized start-up costs relating to
Hecla's 29.73% ownership interest in the Greens Creek mine. The adjustment was
the result of the required application of Statement of Position No. 98-5,
"Reporting on the Costs of Start-up Activities."
Cash operating and total cash cost per gold ounce increased from $177 and
$189 in 1998 to $195 and $205 in 1999, respectively. The increases in the cash
operating and total cash cost per gold ounce were primarily attributable to the
decrease in production at the Rosebud mine and higher per ounce costs at the La
Choya mine resulting from the cessation of mining in December 1998. Total
production costs per gold ounce increased from $262 per ounce in 1998 to $298
per ounce in 1999. The increase in the total production cost per gold ounce was
primarily attributable to increased depreciation charges associated with the La
Choya pit expansion completed in 1998.
Cash operating, total cash and total production cost per silver ounce
decreased from $3.96, $3.96 and $5.37 in 1998 to $3.72, $3.72 and $5.25 in 1999,
respectively. The decreases in the cost per silver ounce were due primarily to
positive impacts of increased by-product zinc and lead production, as well as
increased silver production. Gold, lead and zinc are by-products of Hecla's
silver production, the revenues from which are offset against production costs
in the calculation of costs per ounce of silver.
<PAGE> 57
Results of Operations
- ---------------------
1998 Compared to 1997
- ---------------------
Hecla recorded a net loss of approximately $0.3 million ($0.01 per common
share) in 1998 compared to a net loss of approximately $0.5 million ($0.01 per
common share) in 1997. After $8.1 million in dividends to holders of Hecla's
Series B Cumulative Convertible Preferred Stock, Hecla's loss applicable
to common shareholders for 1998 was approximately $8.4 million, or $0.15 per
common share, compared to $8.5 million, or $0.16 per common share in 1997. The
change in the loss applicable to common shareholders during 1998 was
attributable to a variety of factors, the most significant of which are
discussed below in descending order of magnitude.
Sales of products decreased by approximately $4.7 million, or 2.9%, in 1998
compared to 1997 primarily due to:
- decreased sales totaling approximately $23.5 million from gold
operations due to decreased production and a lower gold price in the
1998 period,
- increased sales totaling approximately $9.7 million from Hecla's
industrial minerals segment principally the result of improvements
at both K-T Clay and MWCA, and
- increased sales totaling approximately $9.1 million from silver
operations principally a result of increased production at the Lucky
Friday mine and a higher silver price, partly offset by lower gold,
zinc and lead by-product prices.
The following table compares the average metal prices for 1998 with 1997:
Metal 1998 1997 $ Change % Change
---------------------------- ------ ------ -------- --------
Gold-Realized ($/oz) $ 301 $ 356 $ (55) (15.4)%
Gold-London Final ($/oz) 294 331 (37) (11.2)
Silver-Handy & Harman ($/oz) 5.53 4.90 0.63 12.9
Lead-LME Cash (cents/pound) 0.240 0.283 (0.043) (15.2)
Zinc-LME Cash (cents/pound) 0.465 0.597 (0.132) (22.1)
Cost of sales and other direct production costs increased $1.2 million
from $126.7 million in 1997 to $127.9 million in 1998, primarily due to:
<PAGE> 58
- increased cost of sales at the industrial minerals segment of $8.5
million resulting from increased sales of products at K-T Clay and
MWCA, combined with reorganization costs at MWCA and a patent
litigation settlement at K-T Clay,
- increased cost of sales at the Lucky Friday mine totaling $4.8 million
resulting from increased production and sales from the newly developed
expansion area,
- increased cost of sales at the Rosebud mine of $4.7 million due to
operating the mine for a full year in 1998 compared to nine months in
1997 following the commencement of operations in April 1997,
- increased cost of sales at the Greens Creek mine of $0.4 million,
- decreased cost of sales at the Grouse Creek mine of $10.3 million
where operations were suspended in April 1997,
- decreased cost of sales at the La Choya mine of $6.3 million, due to
decreased production, and
- decreased cost of sales at other operations totaling approximately
$0.5 million.
Cost of sales and other direct production costs as a percentage of sales
increased from 77.3% in 1997 to 80.3% in 1998. The increase was primarily due
to the effects of decreased gold production at the La Choya mine, and lower
gold, zinc and lead prices in the 1998 period.
Depreciation, depletion and amortization increased $1.2 million, or 5.7%,
from 1997 to 1998 principally due to:
- increased depreciation at the Rosebud mine ($1.5 million), the result
of operating twelve months in 1998 versus nine months in 1997,
- increased depreciation at the Lucky Friday mine ($1.2 million), due to
increased production in the 1998 period,
- increased depreciation at the industrial minerals segment ($0.2
million),
- decreased depreciation at the La Choya mine ($1.5 million) as a
result of the majority of the current property, plant and equipment
being fully depreciated as of December 31, 1997, and
<PAGE> 59
- decreased depreciation at the Greens Creek mine ($0.3 million).
Exploration expenditures decreased $2.5 million from $7.4 million in 1997
to $4.9 million in 1998, principally in Mexico at the La Jojoba and El Porvenir
properties, partly offset by increased expenditures in Peru and Chile at the
Alto Dorado and Cacique sites.
A reduction in carrying value of mining properties was recorded in 1997 for
$0.7 million resulting from a $0.5 million adjustment at the Lisbon Valley joint
venture, a uranium property, and a $0.2 million adjustment of material and
supplies inventory at the Grouse Creek mine.
The provision for closed operations and environmental matters increased
$1.4 million, from a benefit of $0.7 million in 1997 to a provision of $0.7
million in 1998, as a result of a provision in 1998 at the closed Star mine
versus a benefit in 1997 ($1.3 million), a decreased benefit from the American
Girl mine in 1998 ($1.2 million), and other net increases of $0.3 million.
These items were partly offset by a decreased provision at Grouse Creek ($1.3
million).
Interest and other income increased approximately $1.3 million from $4.6
million in 1997 to $5.9 million in 1998, primarily due to 1998 gains on the sale
of land located near Hecla's corporate headquarters ($3.0 million), and a gain
on investments in 1998 versus a loss in 1997 ($1.5 million). These were partly
offset by the 1997 gain on sale of an 8% interest in the Buckhorn joint venture,
in Nevada, of $1.1 million and decreased royalty income of $0.5 million.
Interest costs, net of amount capitalized, increased $0.6 million from $1.7
million in 1997 to $2.3 million in 1998 as a result of increased borrowings in
1998 under Hecla's revolving and term loan credit facility and increased
interest expense and fees associated with Hecla's tax-exempt solid waste
disposal bonds. Capitalized interest costs increased $0.2 million due to
increased capitalized interest associated with the Lucky Friday expansion
project of $0.4 million, which was partly offset by decreased capitalized
interest at the Rosebud mine.
Income tax expense decreased $2.8 million as a result of a $0.9 million tax
benefit in 1998 compared to a provision of $1.9 million in 1997. The benefit in
1998 primarily relates to the resolution of outstanding foreign tax matters in
Hecla's favor during 1998, combined with the carryback of certain 1998
expenditures to reduce U.S. income taxes previously provided, partly offset by a
provision for various state income taxes. The provision in 1997 primarily
reflects the provisions for foreign income taxes as well as various state income
taxes, partially offset by the carryback of certain 1997 expenditures to reduce
U.S. income taxes previously provided.
<PAGE> 60
Cash operating costs, total cash costs and total production costs per gold
ounce increased from $166, $173 and $239 in 1997 to $177, $189 and $262 in 1998,
respectively. The increases in the cash operating, total cash and total
production costs per gold ounce were mainly attributed to increased per ounce
costs at both the La Choya mine, the result of decreased production, and the
Rosebud mine, the result of higher milling costs and mining of lower grade gold
ore.
Cash operating costs and total cash costs per silver ounce increased from
$3.58 and $3.58 in 1997 to $3.96 and $3.96 in 1998, respectively. The increases
in cash costs per ounce amounts are due primarily to increased costs per ounce
amounts at the Greens Creek mine due to the impact of lower gold, zinc and lead
by-product prices, partly offset by decreased costs per ounce amounts at Lucky
Friday resulting from increased silver production from higher grade ore, which
was also offset by lower by-product metal prices. Total production costs per
silver ounce decreased slightly from $5.42 per ounce in 1997 to $5.37 per ounce
in 1998, principally the result of lower depreciation and depletion per ounce at
the Lucky Friday mine due to increased ore reserves. Gold, lead and zinc are by-
products of Hecla's silver production, the revenues from which are netted
against production costs in the calculation of the production costs per ounce of
silver.
Financial Condition and Liquidity
- ---------------------------------
A substantial portion of Hecla's revenue is derived from the sale of
products, the prices of which are affected by numerous factors beyond Hecla's
control. Prices may change dramatically in short periods of time and such
changes have a significant effect on revenues, profitability and liquidity of
Hecla. Hecla is subject to many of the same inflationary pressures as the U.S.
economy in general. Hecla continues to seek and implement cost-cutting measures
in an effort to reduce per unit production costs. Management believes, however,
that Hecla may not be able to continue to offset the impact of inflation over
the long term through cost reductions alone. However, the market prices for
products produced by Hecla have a much greater impact than inflation on Hecla's
revenues and profitability. Moreover, the discovery, development and
acquisition of mineral properties are in many instances unpredictable events.
Future metals prices, the success of exploration programs, changes in legal and
regulatory requirements and other property transactions can have a significant
impact on the need for capital (see "Investment Considerations" in this Form
10-K).
<PAGE> 61
At December 31, 1999, assets totaled approximately $268 million and
shareholders' equity totaled approximately $133 million. Cash and cash
equivalents increased by $0.2 million from $2.5 million at the end of 1998 to
$2.7 million at December 31, 1999. During 1999, $16.6 million of cash was
provided by financing activities. The major sources of cash were borrowings on
long-term debt of $54.0 million and proceeds from common stock issuances, net of
offering costs, of $11.9 million. These sources of cash were partially offset
by uses of cash including repayments on long-term debt of $41.2 million and
payment of preferred stock dividends of $8.1 million.
Operating activities provided $3.0 million of cash during 1999. The
primary sources of cash were from the industrial minerals segment, the Greens
Creek mine, the Rosebud mine and the Lucky Friday mine. Significant uses of
cash included (1) $9.4 million for reclamation activities and other noncurrent
liabilities; (2) $4.8 million in accounts payable and accrued expenses
principally due to decreases at MWCA, decreases at the La Choya mine as activity
at the mine decreased in 1999 and at the La Camorra mine where Hecla funded
working capital deficiencies; and (3) $1.7 million increase in accounts and
notes receivable due primarily to increased sales and the timing of cash
receipts at Greens Creek. Principal noncash charges included provisions for
reclamation and closure costs of $28.6 million, depreciation, depletion and
amortization costs of approximately $23.7 million, a reduction in carrying value
of mining properties of $4.6 million and a cumulative effect of change in
accounting principle for previously unamortized start-up costs at Greens Creek
of approximately $1.4 million, partly offset by gains on sales of properties,
plants and equipment of $2.1 million.
Hecla's investing activities used $19.3 million of cash during 1999. The
most significant uses of cash were (1) $13.5 million for properties, plants and
equipment additions, including significant additions at the La Camorra mine of
$5.4 million, the Greens Creek mine of $2.8 million, the Noche Buena project of
$2.3 million and the industrial minerals segment of $2.2 million; and (2) the
purchase of Monarch Resources Investments Limited, net of cash acquired, for
$9.2 million. These uses of cash were partly offset by proceeds from
disposition of properties, plants and equipment in 1999 totaling approximately
$2.5 million, principally from the sale of the corporate airplane and land
located near Hecla's corporate headquarters in Coeur d'Alene, Idaho.
<PAGE> 62
During 1999, Hecla actively marketed for the sale of its MWCA subsidiary.
Based on the anticipated selling price, Hecla recorded a carrying value
adjustment to the assets of MWCA totaling $4.4 million in 1999. Hecla completed
a sales transaction for the Mountain West Products division of MWCA in March
2000. The proceeds from the sale of Mountain West Products were utilized to
reduce bank debt. The sale of the Colorado Aggregate division is expected to
close later in 2000, although there can be no assurance that the sales
transaction will be completed.
Hecla estimates that capital expenditures to be incurred during 2000 will
be approximately $15.7 million. These estimated capital expenditures consist
primarily of:
Property Expenditure
---------------------------- ------------
Industrial minerals segment $5.4 million
Greens Creek (29.73% interest) $5.0 million
La Camorra $2.6 million
Lucky Friday $2.2 million
Rosebud (50% interest) $0.5 million
These planned capital expenditures will depend, in large part, on Hecla's
ability to obtain the required funds from operating activities, amounts
available under its restated bank agreement, potential debt financings and the
possible issuance of additional equity. There can be no assurance that actual
capital expenditures will be as projected based upon the uncertainties
associated with the estimates for capital projects, uncertainties associated
with possible development projects, and Hecla's ability to generate adequate
funding for the projected capital expenditures.
Hecla's estimate of its capital expenditure requirements assumes, with
respect to the Greens Creek and Rosebud properties, that Hecla's joint venture
partners will not default with respect to their portion of development costs and
capital expenditures.
During 1999, Hecla continued its feasibility study on the Noche Buena gold
project in Mexico. Hecla completed fill-in drilling to 35-meter centers on the
core of the deposit as well as step out drilling to expand the deposit.
Additional metallurgical testing was also completed during 1999. However, at
the current gold price, Hecla has decided to suspend development of this
project. Hecla will reconsider the status of this project when the gold price
returns to a higher level; however, there can be no assurance that Hecla will
ever develop the Noche Buena project.
<PAGE> 63
Pursuant to a Registration Statement filed with the Securities and Exchange
Commission and declared effective in the third quarter of 1995, Hecla can, at
its option, issue debt securities, common shares, preferred shares or warrants
in an amount not to exceed $100.0 million in the aggregate. During 1999, in two
separate issuances, Hecla sold an aggregate of 4,738,807 shares of common stock
realizing proceeds of approximately $11.9 million, net of issuance costs.
Additionally, 1,603,998 warrants to purchase Hecla common stock were issued in
connection with one of the issuances. Each warrant entitles the holder to
purchase one share of common stock at an exercise price equal to the lesser of
$3.19 or 102% of the volume weighted average price on the NYSE for each trading
day during the ten consecutive trading days immediately preceding the date that
notice of exercise is given to Hecla. The warrants are exercisable until May
11, 2002. In September 1999, Hecla issued 97,000 shares of its common stock
upon exercise of warrants. Proceeds of $0.3 million were realized from the
exercise of the warrants. At December 31, 1999, 1,506,998 warrants remain
outstanding. These equity issuances were sold under the above-described
Registration Statement. As of December 31, 1999, Hecla has issued $62.2 million
of Hecla's common shares and warrants under the Registration Statement.
On May 7, 1999, Hecla entered into a restated credit agreement. Under the
revised terms of the bank agreement, the amount available to borrow remains at
$55.0 million, subject to certain limitations. On June 25, 1999, Hecla entered
into a first amendment to the bank agreement which provided for the waiver of
certain restrictive covenants, allowing Hecla to enter into a project financing
facility to acquire MRIL, as discussed below. Amendments to the bank agreement
were also entered into on August 31, 1999, December 20, 1999, and December 30,
1999. At December 31, 1999, there was $32.5 million outstanding under Hecla's
$55.0 million bank agreement classified as long-term debt. Hecla was in
compliance with all covenants pursuant to the bank agreement as of December 31,
1999. Hecla also has outstanding $9.8 million aggregate principal amount of tax-
exempt, solid waste disposal revenue bonds as of December 31, 1999. The amount
available to borrow under the bank agreement is reduced by the $9.8 million
principal amount of these bonds. At December 31, 1999, Hecla had the ability to
borrow an additional $12.7 million under the bank agreement.
On March 21, 2000, Hecla received a commitment letter from a bank to
provide for a $55.0 million term loan facility due one year after funding.
Proceeds from the term loan facility will be utilized to repay amounts
outstanding under the current Bank Agreement, the revenue bonds and the
subordinated debt, as well as for general corporate purposes. The terms of the
facility include certain collateral provisions, including the pledging of the
common stock of certain of Hecla's subsidiaries and providing the lender a
security interest in certain other assets of Hecla. Interest rates are to be
based on LIBOR plus a margin of 2.25%. Funding pursuant to the commitment is
expected to occur during April 2000 upon satisfactory completion of legal
documentation.
<PAGE> 64
On June 25, 1999, Hecla's newly acquired, wholly owned subsidiary, Hecla
Resources Investments Limited (HRIL), formerly Monarch Resources Investments
Limited, entered into a credit agreement to provide project financing of up to
$11.0 million, nonrecourse to Hecla, to finance the acquisition of HRIL. HRIL
granted a security interest over the stock of its Venezuelan subsidiary, certain
Venezuelan real property assets and all cash proceeds of the newly acquired La
Camorra mine. HRIL must maintain compliance with certain financial and other
restrictive covenants related to the available ore reserves and financial
performance of the La Camorra mine. HRIL borrowed $10.5 million, pursuant to
the terms of the project financing agreement, which is repayable in nine
semiannual payments beginning June 30, 2000. At December 31, 1999, HRIL had
outstanding pursuant to the project financing agreement $10.5 million principal
amount. In connection with the project financing agreement, as of June 25,
1999, Hecla entered into a subordinated loan agreement which provided a $3.0
million zero coupon loan, subordinate to Hecla's existing $55.0 million
revolving and term loan credit facility, repayable in three semiannual payments
beginning June 30, 2003. The entire $3.0 million subordinated loan was
outstanding at December 31, 1999. The terms of the subordinated loan agreement
provide that Hecla must maintain compliance with the financial covenants of
Hecla's $55.0 million credit agreement. The interest rates for borrowing under
the project financing and subordinated debt agreements were 8.7% and 10.2%,
respectively, as of December 31, 1999. The interest rates in the subordinated
loan agreement and the project financing agreement are based on the London
Interbank Offered Rates. Additionally, HRIL sold forward 306,045 ounces of gold
on a quarterly basis over the period December 1999 to December 2004, at a flat
forward price of $288.25 per ounce, and as a portion of the sale entered into an
agreement at a quarterly Gold Lease Rate Swap at a fixed rate of 1.5% on the
outstanding volume of the above forward sales, commencing June 2000.
Exploration expenditures for 2000 are estimated to be approximately $4.0 to
$4.5 million. Hecla's exploration strategy is to focus further exploration at,
or in the vicinity of, its currently owned domestic and foreign properties, as
well as grass roots and advanced stage projects. Accordingly, domestic
exploration expenditures are expected to be incurred principally at Rosebud and
Greens Creek. Foreign exploration efforts in 2000 will center primarily on
targets in Mexico, including the Saladillo property, and at La Camorra. There
can be no assurances that actual exploration expenditures will be as projected.
Hecla's planned environmental and reclamation expenditures during 2000 are
expected to be approximately $12.0 to $14.0 million, principally for
environmental and reclamation activities at the Grouse Creek mine and Bunker
Hill Superfund site. At the Grouse Creek mine, Hecla is currently working with
federal and state agencies on the development of an effective plan for
dewatering the tailings impoundment, as such, there can be no assurances that
actual environmental and reclamation expenditures at Grouse Creek or other idle
facilities will be as projected.
<PAGE> 65
Reserves for closure costs, reclamation and environmental matters totaled
$49.3 million at December 31, 1999. Hecla anticipates that expenditures
relating to these reserves will be made over the next several years. Although
Hecla believes the allowance is adequate based on current estimates of aggregate
costs, Hecla plans to periodically reassess its environmental and reclamation
obligations as new information is developed. Depending on the results of any
reassessment, it is reasonably possible that Hecla's estimate of its obligations
may change in the near term.
For information on hedged positions and derivative instruments, see Item 7A
"Quantitative and Qualitative Disclosure About Market Risk."
Hecla is subject to legal proceedings and claims which have arisen in the
ordinary course of its business that have not been finally adjudicated (see Part
II, Item 3, Legal Proceedings and Note 8 of Notes to Consolidated Financial
Statements). Although the ultimate disposition of these matters and various
other pending legal actions and claims are not presently determinable, it is the
opinion of Hecla's management that the outcome of these matters will not have a
material adverse effect on the financial position of Hecla and its subsidiaries.
However, it is possible that these matters could have a material effect on
quarterly or annual operating results and cash flows, when they are resolved, in
future periods.
Year 2000
- ---------
Hecla utilizes software and related technologies throughout its business
that may have been susceptible to the "Year 2000 computer problem," which is
common to many corporations and governmental entities. This problem concerns
the inability of information systems, primarily computer software programs and
certain hardware, to properly recognize and process date-sensitive information
as the Year 2000 approaches. Absent corrective actions, computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in system failures or miscalculations
causing disruptions to various activities and operations.
Hecla established thirteen teams to identify and correct Year 2000
compliance issues. Hecla's primary information systems (IS) with non-compliant
code were modified or replaced with systems that are Year 2000 compliant. Hecla
also evaluated its non-IS applications, primarily systems embedded in processing
and other facilities. Additionally, the teams evaluated Hecla's critical
suppliers and vendors as to their state of readiness for the Year 2000.
<PAGE> 66
Hecla's primary IS were originally evaluated in 1996, and out of 2,300
programs, 850 were identified that required modification. All of the 850
programs have been modified, installed and tested by Hecla's information
services department. End user testing is complete. Hecla's other IS have been
evaluated and are compliant systems. Remediation and contingency plans are
complete.
Inventories and assessments of non-IS have been completed by all thirteen
teams. Remediation efforts have been completed. Contingency plans have been
developed for all major components in case of system failures surrounding the
Year 2000.
Hecla utilized independent consultants to oversee the Year 2000 project as
well as to perform certain remediation efforts. In addition, progress on the
Year 2000 project was monitored by senior management, and reported to the Board
of Directors at each respective meeting.
Hecla identified critical suppliers, as well as other essential service
providers, and surveyed their Year 2000 compliance. Based on expected
compliance dates expressed by some of these critical suppliers and other service
providers, continued follow-up will be required to ensure all Year 2000 issues
were addressed. These follow-up activities occurred throughout 1999 and will
continue through the first quarter of 2000. For other suppliers and service
providers, risk assessments and contingency plans were finalized by the end of
the third quarter of 1999. Hecla has taken the above-described steps to address
issues surrounding suppliers and service providers; however, Hecla has no direct
ability to influence other parties' compliance actions.
Contingency plans for Year 2000 related business interruptions were
developed and included, but were not limited to, the development of emergency
backup recovery procedures, replacing automated processes with manual processes,
identification of alternate suppliers, and increasing raw material supplies and
finished goods inventory prior to December 31, 1999. Substantially all plans
were completed by the end of the third quarter of 1999.
Incremental costs directly related to Year 2000 issues are estimated to be
$135,000 from 1998 to 2000, of which approximately $121,000 has been spent as of
December 31, 1999. Hecla's current estimate of expected costs is based upon
work performed to date, and depending on the results of future work, the cost
estimate may increase. This estimate assumes that Hecla will not incur
significant Year 2000 costs on behalf of its suppliers or customers.
Hecla's Year 2000 efforts were successful. To date, there have been no
material disruptions at any of Hecla's operations or by our vendors, contractors
or customers.
<PAGE> 67
The foregoing Year 2000 disclosures are based on Hecla's current
expectations, estimates and projections. Hecla believes it has taken the
necessary actions to mitigate the effect of Year 2000 risks, although Hecla is
not able to eliminate the risks or to estimate the ultimate effect Year 2000
will have on Hecla's operating results and financial condition.
New Accounting Pronouncement
- -----------------------------
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" was issued. SFAS 137 defers the effective date of
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000; however, earlier application is encouraged as of the beginning of any
fiscal quarter. Hecla is presently evaluating the effect the adoption of this
standard will have on Hecla's financial condition, results of operations and
cash flows.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The following discussion about Hecla's risk-management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.
The following tables summarize the financial instruments and derivative
instruments held by Hecla at December 31, 1999, which are sensitive to changes
in interest rates and commodity prices. Hecla believes that there has not been
a material change in its market risk since the end of its last fiscal year. In
the normal course of business, Hecla also faces risks that are either
nonfinancial or nonquantifiable (See "Investment Considerations" of Part I, Item
1 of this Form 10-K).
Interest-Rate Risk Management
At December 31, 1999, Hecla's debt was subject to changes in market
interest rates and was sensitive to those changes. Hecla currently has no
derivative instruments to offset the risk of interest rate changes. Hecla may
choose to use derivative instruments, such as interest rate swaps to manage the
risk associated with interest rate changes.
<PAGE> 68
The following table presents principal cash flows for debt outstanding at
December 31, 1999, by maturity date and the related average interest rate. The
variable rates are estimated based on implied forward rates in the yield curve
at the reporting date.
<TABLE>
<CAPTION>
(in thousands)
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
------- ------- -------- -------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank credit agreement $ - - $ - - $ 16,250 $ 16,250 $ - - $ - - $ 32,500 $ 32,500
Average interest rate 9.12% 9.76% 9.86% 9.93% 10.08% - -
Revenue bonds $ - - $ - - $ - - $ - - $ - - $ 9,800 $ 9,800 $ 9,800
Average interest rate 3.97% 4.25% 4.49% 4.67% 4.80% 4.65%
Project financing debt $ 750 $ 3,250 $ 3,000 $ 3,000 $ 500 $ - - $ 10,500 $ 10,500
Average interest rate 8.86% 9.52% 9.61% 9.68% 9.83% - -
Subordinated bank debt $ - - $ - - $ - - $ 2,000 $ 1,000 $ - - $ 3,000 $ 3,000
Average interest rate 10.36% 11.02% 11.11% 11.18% 11.33% - -
</TABLE>
Commodity-Price Risk Management
Hedging
Hecla uses commodity forward sales commitments, commodity swap contracts,
and commodity put and call option contracts to manage its exposure to
fluctuation in the prices of certain metals which it produces. Contract
positions are designed to ensure that Hecla will receive a defined minimum price
for certain quantities of its production. Hecla uses these instruments to
reduce risk by offsetting market exposures. Hecla is exposed to certain losses,
generally the amount by which the contract price exceeds the spot price of a
commodity, in the event of nonperformance by the counterparties to these
agreements. The instruments held by Hecla are not leveraged and are held for
purposes other than trading. All of these contracts were designated as hedges
at December 31, 1999.
The following table provides information about Hecla's forward sales
commitments and commodity swap contracts at December 31, 1999. The table
presents the notional amount in ounces or tonnes, the average forward sales
price, and the total-dollar contract amount expected by the maturity dates,
which occur between January 31, 2000 and December 31, 2004.
<PAGE> 69
<TABLE>
<CAPTION>
Expected Expected Expected Expected Expected Estimated
Maturity Maturity Maturity Maturity Maturity Fair
2000 2001 2002 2003 2004 Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Forward contracts:
Gold sales (ounces) 65,027 62,010 60,428 59,802 48,928
Future price (per ounce) $ 287 $ 288 $ 288 $ 288 $ 288
Contract amount (in $000's) $ 18,649 $ 17,874 $ 17,418 $ 17,238 $ 14,103 $ (7,611)
Silver sales (ounces) 1,200,000 - - - - - - - -
Future price (per ounce) $ 5.51 $ - - $ - - $ - - $ - -
Contract amount (in $000's) $ 6,606 $ - - $ - - $ - - $ - - $ 90
Swap contracts:
Zinc (tonnes) 6,000 - - - - - - - -
Future price (per pound) $ 0.510 $ - - $ - - $ - - $ - -
Contract amount (in $000's) $ 6,743 $ - - $ - - $ - - $ - - $ (560)
Lead (tonnes) 3,000 - - - - - - - -
Future price (per pound) $ 0.245 $ - - $ - - $ - - $ - -
Contract amount (in $000's) $ 1,620 $ - - $ - - $ - - $ - - $ 136
</TABLE>
In addition to the above contracts, Hecla has a quarterly Gold Lease Rate
Swap at a fixed rate of 1.5% on 257,242 ounces of the above gold forward
contracts. The ounces covered under the swap are adjusted each quarter,
commencing June 30, 2000, in accordance with the expiration of the gold forward
contracts. The estimated cost to close out the Gold Lease Rate Swap at December
31, 1999 was $2,019,000.
Trading
During 1999, Hecla sold call options for 1,650,000 ounces of silver through
June 30, 2000, at an average strike price of $5.36. Hecla sold the call options
to provide additional cash flow. The sale of the options are designed to
provide some price protection, to the extent of the amount of the call premium
received, in the event of a decline in the price of silver. These contracts
also limit the maximum that Hecla may receive on a portion of Hecla's silver
production to the strike price of the options plus the premium received. Hecla
is exposed to price risk on these call options, and the value of the call
options are marked to market with a gain or loss, if any, recorded in earnings.
Through December 31, 1999, Hecla recognized revenue of $456,000 from expired
call option contracts and a mark to market adjustment.
The following table provides information about Hecla's silver call options
at December 31, 1999. The table presents the notional amount in ounces, the
weighted average strike price, and the total-dollar contract amount expected by
the maturity dates, which occur between January 31, 2000 and June 30, 2000.
<PAGE> 70
Expected Estimated
Maturity Fair
2000 Value
-------- ---------
Sold call options:
Silver calls (ounces) 300,000
Weighted average strike price (per ounce) $ 5.50
Contract amount (in $000's) $ 1,650 $ 33
Item 8. Financial Statements and Supplementary Data.
See Item 14 of this Report for information with respect to the financial
statements filed as a part hereof, including financial statements filed pursuant
to the requirements of this Item 8.
Selected Quarterly Data
(dollars in thousands except for per-share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
1999: Quarter Quarter Quarter Quarter Total
- ----- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales of products $ 41,658 $ 46,058 $ 38,305 $ 37,593 $ 163,614
Gross profit (loss) $ 4,260 $ 5,085 $ 2,620 $ (1,244) $ 10,721
Net income (loss) $ (1,499) $ 2,335 $ (34,002) $ (6,824) $ (39,990)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Income (loss) applicable to
common shareholders $ (3,511) $ 322 $ (36,015) $ (8,836) $ (48,040)
Basic and diluted income
(loss) per common share $ (0.06) $ 0.01 $ (0.54) $ (0.13) $ (0.77)
1998:
- -----
Sales of products $ 40,129 $ 45,655 $ 38,611 $ 34,836 $ 159,231
Gross profit (loss) $ 4,476 $ 4,120 $ 3,029 $ (2,533) $ 9,092
Net income (loss) $ 2,847 $ 2,996 $ (641) $ (5,502) $ (300)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Income (loss) applicable to
common shareholders $ 835 $ 983 $ (2,654) $ (7,514) $ (8,350)
Basic and diluted income
(loss) per common share $ 0.02 $ 0.02 $ (0.05) $ (0.14) $ (0.15)
</TABLE>
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
<PAGE> 71
Part III
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to the information with respect to the directors of
Hecla set forth under the caption "Election of Directors" in Hecla's proxy
statement to be filed pursuant to Regulation 14A for the annual meeting
scheduled to be held on May 5, 2000 (the Proxy Statement), which
information is incorporated herein by reference. Information with respect
to executive officers of Hecla is set forth as follows:
Age at
May 5,
Name 2000 Position and Term Served
---------------- ------- --------------------------------
William B. Booth 49 Vice President - Investor and Public Affairs
since May 1994; various administrative
functions with Hecla since December 1985.
Arthur Brown 59 Chairman since June 1987; Chief Executive
Officer since May 1987; President since May
1986.
J. Gary Childress 52 Vice President - Industrial Minerals since
February 1994; President and General Manager
of Kentucky-Tennessee Clay Company from 1987
to 1994.
Roger A. Kauffman 56 Executive Vice President and Chief Operating
Officer since June 1996; President and Chief
Operating Officer of Amax Gold from 1994
to 1996; previously employed with Hecla from
1985 to 1994 serving as Vice President -
Industrial Minerals from 1986 to 1994.
Jon T. Langstaff 63 Vice President - Human Resources since May
1995; Personnel Manager from 1982 to 1995.
John P. Stilwell 47 Vice President - Chief Financial Officer since
May 1996; Vice President - Chief Financial
Officer and Treasurer from May 1996 to May
1997; Vice President - Finance and Treasurer
May 1994 to May 1996; Treasurer since June
1991.
<PAGE> 72
Age at
May 5,
Name 2000 Position and Term Served
---------------- ------- --------------------------------
Michael B. White 49 Vice President - General Counsel and Secretary
since May 1992; Secretary since November 1991;
Assistant Secretary from March 1981 to November
1991; General Counsel since June 1986.
David F. Wolfe 56 Treasurer since May 1997; Manager of Precious
Metals Marketing since 1993; Assistant
Treasurer from June 1985 to May 1997.
There are no family relationships between any of the executive officers.
Item 11. Executive Compensation.
Reference is made to the information set forth under the caption
"Compensation of Executive Officers" in the Proxy Statement (except the Report
on the Compensation Committee on Executive Compensation set forth therein) to be
filed pursuant to Regulation 14A, which information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Reference is made to the information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement to
be filed pursuant to Regulation 14A, which information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
Reference is made to the information set forth in the Proxy Statement to be
filed pursuant to Regulation 14A, which information is incorporated herein by
reference.
<PAGE> 73
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
See Index to Financial Statements on Page F-1
(a) (2) Financial Statement Schedules
See Index to Financial Statements on Page F-1
(a) (3) Exhibits
See Exhibit Index following the financial statements
(b) Reports on Form 8-K
None
<PAGE> 74
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 24,
2000.
HECLA MINING COMPANY
By /s/ Arthur Brown
----------------------------
Arthur Brown, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Arthur Brown 3/24/2000 /s/ Theodore Crumley 3/24/2000
- ---------------------------------- ----------------------------------
Arthur Brown Date Theodore Crumley Date
Chairman and Director Director
(principal executive officer)
/s/ Lewis E. Walde 3/24/2000 /s/ Leland O. Erdahl 3/24/2000
- ---------------------------------- ----------------------------------
Lewis E. Walde Date Leland O. Erdahl Date
Assistant Controller Director
(principal accounting officer)
/s/ John P. Stilwell 3/24/2000 /s/ Charles L. McAlpine 3/24/2000
- ----------------------------------- ----------------------------------
John P. Stilwell Date Charles L. McAlpine Date
Vice President - Chief Financial Director
Officer (principal financial officer)
/s/ John E. Clute 3/24/2000 /s/ Thomas J. O'Neil 3/24/2000
- ---------------------------------- ----------------------------------
John E. Clute Date Thomas J. O'Neil Date
Director Director
/s/ Joe Coors, Jr. 3/24/2000 /s/ Jorge E. Ordonez 3/24/2000
- ---------------------------------- ----------------------------------
Joe Coors, Jr. Date Jorge E. Ordonez Date
Director Director
/s/ Paul A. Redmond 3/24/2000
- -----------------------------------
Paul A. Redmond Date
Director
<PAGE> 75
Index to Financial Statements
Page
----
Financial Statements
- --------------------
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
1999 and 1998 F-3
Consolidated Statements of Operations and
Comprehensive Loss for the Years Ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 to F-35
Financial Statement Schedules*
- -----------------------------
*Financial statement schedules
have been omitted as not applicable
<PAGE> 76
Report of Independent Accountants
- ---------------------------------
The Board of Directors and Shareholders of
Hecla Mining Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive loss, changes in
shareholders' equity and of cash flows present fairly, in all material respects,
the financial position of Hecla Mining Company and subsidiaries (the Company) at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for start-up costs in 1999 as required by a
Statement of Position issued by the American Institute of Certified Public
Accountants.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
February 4, 2000, except for Note 15, as to which the date is March 21, 2000.
<PAGE> 77
Hecla Mining Company and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
-----------
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,719 $ 2,480
Accounts and notes receivable 29,194 25,919
Income tax refund receivable 8 1,087
Inventories 24,033 22,757
Other current assets 2,548 1,251
----------- -----------
Total current assets 58,502 53,494
Investments 2,130 3,406
Restricted investments 5,998 6,331
Properties, plants and equipment, net 191,026 178,168
Other noncurrent assets 10,701 10,663
----------- -----------
Total assets $ 268,357 $ 252,062
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 12,135 $ 12,082
Accrued payroll and related benefits 4,394 2,852
Preferred stock dividends payable 2,012 2,012
Current portion of long-term debt 782 90
Accrued taxes 2,369 772
Accrued reclamation and closure costs 8,384 6,537
----------- -----------
Total current liabilities 30,076 24,345
Deferred income taxes 300 300
Long-term debt 55,095 42,923
Accrued reclamation and closure costs 40,941 23,216
Other noncurrent liabilities 9,244 9,542
----------- -----------
Total liabilities 135,656 100,326
----------- -----------
Commitments and contingencies (Notes 1, 2, 3, 7 and 8)
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value, authorized 5,000,000 shares;
issued and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, $0.25 par value, authorized 100,000,000 shares;
issued 1999 - 66,844,575 shares,
issued 1998 - 55,166,728 shares 16,711 13,792
Capital surplus 400,205 374,017
Accumulated deficit (278,533) (230,493)
Accumulated other comprehensive loss (4,871) (5,269)
Less stock held by grantor trust; 1999 - 132,290 common shares,
1998 - 0 common shares (500) - -
Less treasury stock, at cost; 1999 - 62,111 common shares,
1998 - 62,110 common shares (886) (886)
----------- -----------
Total shareholders' equity 132,701 151,736
----------- -----------
Total liabilities and shareholders' equity $ 268,357 $ 252,062
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE> 78
Hecla Mining Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(Dollars and shares in thousands, except per share amounts)
-------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales of products $ 163,614 $ 159,231 $ 163,948
---------- ---------- ----------
Cost of sales and other direct production costs 129,476 127,933 126,742
Depreciation, depletion and amortization 23,417 22,206 21,009
---------- ---------- ----------
152,893 150,139 147,751
---------- ---------- ----------
Gross profit 10,721 9,092 16,197
---------- ---------- ----------
Other operating expenses:
General and administrative 7,449 7,583 7,976
Exploration 5,934 4,866 7,422
Depreciation and amortization 321 389 311
Provision for (benefit from) closed operations
and environmental matters 30,100 734 (724)
Reduction in carrying value of mining properties 4,577 - - 715
---------- ---------- ----------
48,381 13,572 15,700
---------- ---------- ----------
Income (loss) from operations (37,660) (4,480) 497
---------- ---------- ----------
Other income (expense):
Interest and other income 5,063 5,917 4,621
Miscellaneous expense (1,581) (1,487) (1,643)
Gain (loss) on investments (96) 1,136 (405)
Interest expense:
Interest costs (4,635) (3,261) (2,462)
Less amount capitalized 19 959 806
---------- ---------- ----------
(1,230) 3,264 917
---------- ---------- ----------
Income (loss) before income taxes and
cumulative effect of change in accounting principle (38,890) (1,216) 1,414
Income tax benefit (provision) 285 916 (1,897)
---------- ---------- ----------
Loss before cumulative effect of change in accounting principle (38,605) (300) (483)
Cumulative effect of change in accounting principle, net of tax (1,385) - - - -
---------- ---------- ----------
Net loss (39,990) (300) (483)
Preferred stock dividends (8,050) (8,050) (8,050)
---------- ---------- ----------
Loss applicable to common shareholders (48,040) (8,350) (8,533)
---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities 13 (115) (351)
Reclassification adjustment for losses included in net loss 96 96 320
Minimum pension liability adjustment 289 (289) - -
---------- ---------- ----------
Other comprehensive income (loss) 398 (308) (31)
---------- ---------- ----------
Comprehensive loss applicable to common shareholders $ (47,642) $ (8,658) $ (8,564)
========== ========== ==========
Basic and diluted loss per common share before cumulative
effect of change in accounting principle $ (0.75) $ (0.15) $ (0.16)
Cumulative effect of change in accounting principle (0.02) - - - -
---------- ---------- ----------
Basic and diluted loss per common share $ (0.77) $ (0.15) $ (0.16)
========== ========== ==========
Weighted average number of common shares outstanding 62,347 55,101 54,763
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 79
Hecla Mining Company and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
-----------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss $ (39,990) $ (300) $ (483)
Noncash elements included in net loss:
Depreciation, depletion and amortization 23,738 22,595 21,320
Cumulative effect of change in accounting principle 1,385 - - - -
Gain on disposition of properties, plant and equipment (2,133) (2,648) (1,111)
Loss (gain) on investments 96 (1,136) 405
Reduction in carrying value of mining properties 4,577 - - 715
Provision for reclamation and closure costs 28,614 581 1,341
Change in assets and liabilities net of effects from purchase of
Monarch Resources Investments Limited (MRIL):
Accounts and notes receivable (1,691) (1,474) (277)
Income tax refund receivable 1,079 (294) 469
Inventories (317) (641) 548
Other current and noncurrent assets (1,324) (1,747) 868
Accounts payable and accrued expenses (4,788) (478) (4,787)
Accrued payroll and related benefits 1,542 416 (796)
Accrued taxes 1,597 (244) (411)
Accrued reclamation and closures costs and other noncurrent liabilities (9,429) (12,587) (11,772)
--------- --------- ---------
Net cash provided by operating activities 2,956 2,043 6,029
--------- --------- ---------
Investing activities:
Purchase of MRIL, net of cash acquired (9,183) - - - -
Additions to properties, plants and equipment (13,467) (22,495) (24,794)
Proceeds from disposition of properties, plants and equipment 2,476 3,733 1,872
Proceeds from the sale of investments 311 1,294 - -
Decrease in restricted investments 333 1,595 13,845
Purchase of investments and change in cash surrender
value of life insurance, net 54 (734) (1,233)
Other, net 133 399 1,642
--------- --------- ---------
Net cash used by investing activities (19,343) (16,208) (8,668)
--------- --------- ---------
Financing activities:
Common stock issued for warrants and stock option plans 277 54 41
Issuance of common stock, net of offering costs 11,865 - - 23,355
Dividends on preferred stock (8,050) (8,050) (8,050)
Payments for debt issuance costs (1,255) - - - -
Borrowings against cash surrender value of life insurance 925 - - - -
Borrowings on long-term debt 54,063 44,531 57,601
Repayments on long-term debt (41,199) (23,684) (73,673)
--------- --------- ---------
Net cash provided (used) by financing activities 16,626 12,851 (726)
--------- --------- ---------
Change in cash and cash equivalents
Net increase (decrease) in cash and cash equivalents 239 (1,314) (3,365)
Cash and cash equivalents at beginning of year 2,480 3,794 7,159
--------- --------- ---------
Cash and cash equivalents at end of year $ 2,719 $ 2,480 $ 3,794
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid during year for:
Interest, net of amount capitalized $ 4,377 $ 1,784 $ 912
========= ========= ==========
Income tax payments (refunds), net $ (847) $ 439 $ 333
========= ========= ==========
See Notes 2 and 4 for noncash investing and financing activities.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 80
Hecla Mining Company and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars and shares in thousands, except per share amounts)
--------------------
<TABLE>
<CAPTION>
Accumulated Stock
Preferred Stock Common Stock Other Held by
----------------- ------------------ Capital Accumulated Comprehensive Grantor Treasury
Shares Amount Shares Amount Surplus Deficit Loss Trust Stock
-------- -------- -------- -------- --------- ----------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 2,300 $ 575 51,199 $ 12,800 $ 351,559 $ (213,610) $ (4,930) $ - - $ (886)
Net loss (483)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issue for cash,
net of issuance costs 3,950 987 22,368
Stock issue to directors 7 2 39
Other comprehensive loss (31)
------ ------ ------ -------- --------- ---------- -------- ------ ------
Balances, December 31, 1997 2,300 575 55,156 13,789 373,966 (222,143) (4,961) - - (886)
Net loss (300)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued under stock
option plans 2 1 11
Stock issued to directors 9 2 40
Other comprehensive loss (308)
------ ------ ------ -------- --------- ---------- -------- ------ ------
Balances, December 31, 1998 2,300 575 55,167 13,792 374,017 (230,493) (5,269) - - (886)
Net loss (39,990)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued for cash,
net of issuance costs 4,739 1,184 10,681
Stock issued under stock
option and warrant plans 99 25 232
Stock issued to directors 8 2 18
Stock issued in connection
with acquisition of MRIL 6,700 1,675 14,290
Stock issued and held by
grantor trust 132 33 967 (500)
Other comprehensive loss 398
------ ------ ------ -------- --------- ---------- -------- ------ ------
Balances, December 31, 1999 2,300 $ 575 66,845 $ 16,711 $ 400,205 $ (278,533) $ (4,871) $ (500) $ (886)
====== ====== ====== ======== ========= ========== ======== ====== ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 81
Hecla Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
--------
Note 1: Summary of Significant Accounting Policies
A. Basis of Presentation -- The accompanying consolidated financial statements
include the accounts of Hecla Mining Company (Hecla or the Company), its
majority-owned subsidiaries and its proportionate share of the accounts of the
joint ventures in which it participates. All significant intercompany
transactions and accounts are eliminated in consolidation.
Hecla's revenues and profitability are largely dependent on world prices
for gold, silver, lead and zinc, which fluctuate widely and are affected by
numerous factors beyond Hecla's control, including inflation and worldwide
forces of supply and demand. The aggregate effect of these factors is not
possible to accurately predict.
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ materially from those
estimates.
Certain consolidated financial statement amounts have been reclassified to
conform to the 1999 presentation. These reclassifications had no effect on the
net loss, comprehensive loss or accumulated deficit as previously reported.
B. Company's Business and Concentrations of Credit Risk -- Hecla is engaged in
mining and mineral processing activities, including exploration, extraction,
processing and reclamation. Hecla's principal products are metals (primarily
gold, silver, lead and zinc) and industrial minerals (primarily clay, aggregate
and landscape products). Substantially all of Hecla's operations are conducted
in the United States, Mexico and Venezuela. Sales of metals products are made
principally to domestic and foreign custom smelters and metal traders. Hecla
sells substantially all of its metallic concentrates to smelters which are
subject to extensive regulations including environmental protection laws. Hecla
has no control over the smelters' operations or their compliance with
environmental laws and regulations. If the smelting capacity available to Hecla
were significantly reduced because of environmental requirements or otherwise,
it is possible that Hecla's silver operations could be adversely affected.
Industrial minerals are sold principally to domestic and Mexican manufacturers
and wholesalers.
Hecla's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. Hecla places its cash
<PAGE> 82
and temporary cash investments with institutions of high credit-worthiness. At
times, such investments may be in excess of the federal insurance limit. Hecla
routinely assesses the financial strength of its customers and, as a
consequence, believes that its trade accounts receivable credit risk exposure is
limited.
C. Inventories -- Inventories are stated at the lower of average cost or
estimated net realizable value.
D. Investments -- Hecla uses the equity method to account for investments in
common stock of operating companies 20% to 50% owned. Investments in
nonoperating companies that are not intended for resale or are not readily
marketable are valued at the lower of cost or net realizable value. Marketable
equity securities are categorized as available for sale and carried at quoted
market value.
Realized gains and losses on the sale of securities are recognized on a
specific identification basis. Unrealized gains and losses are included as a
component of accumulated other comprehensive loss, net of related deferred
income taxes, unless a permanent impairment in value has occurred, which is then
charged to operations.
Restricted investments held at December 31, 1999 and 1998, primarily
represent investments in money market funds. These investments are restricted
primarily for reclamation funding or surety bonds.
E. Properties, Plants and Equipment -- Properties, plants and equipment are
stated at the lower of cost or estimated net realizable value. Maintenance,
repairs and renewals are charged to operations. Betterments of a major nature
are capitalized. When assets are retired or sold, the costs and related
allowances for depreciation and amortization are eliminated from the accounts
and any resulting gain or loss is reflected in operations. Idle facilities,
placed on a standby basis, are carried at the lower of net carrying value or
estimated net realizable value.
Management of Hecla reviews the net carrying value of all facilities,
including idle facilities, on a periodic basis. Hecla estimates the net
realizable value of each property based on the estimated undiscounted future
cash flows that will be generated from operations at each property, the
estimated salvage value of the surface plant and equipment and the value
associated with property interests. These estimates of undiscounted future cash
flows are dependent upon estimates of metal to be recovered from proven and
probable ore reserves and, where appropriate, from the continuity of existing,
developed orebodies, future production costs and future metals prices over the
estimated remaining mine life. If undiscounted cash flows are less than the
carrying value of a property, an impairment loss is recognized based upon the
estimated expected future net cash flows from the property discounted at an
interest rate commensurate with the risk involved.
<PAGE> 83
Management's estimates of metals prices, recoverable proven and probable
ore reserves, and operating, capital and reclamation costs are subject to risks
and uncertainties of change affecting the recoverability of Hecla's investment
in various projects. Although management has made its best estimate of these
factors based on current conditions and information, it is reasonably possible
that changes could occur in the near term which could adversely affect
management's estimate of net cash flows expected to be generated from its
operating properties and the need for asset impairment write-downs.
Management's calculations of proven and probable ore reserves are based on
engineering and geological estimates including minerals prices and operating
costs. Changes in the geological and engineering interpretation of various
orebodies, minerals prices and operating costs may change Hecla's estimates of
proven and probable ore reserves. It is reasonably possible that certain of
Hecla's estimates of proven and probable ore reserves will change in the near
term resulting in a change to amortization and reclamation accrual rates in
future reporting periods.
Depreciation is based on the estimated useful lives of the assets and is
computed using straight-line, declining-balance and unit-of-production methods.
Depletion is computed using the unit-of-production method.
F. Mine Exploration and Development -- Exploration costs are charged to
operations as incurred, as are ongoing development costs at operating mines.
Major mine development expenditures are capitalized at operating properties and
at new mining properties not yet producing.
G. Reclamation of Mining Areas -- All of Hecla's operations are subject to
reclamation and closure requirements. Minimum standards for mine reclamation
have been established by various governmental agencies which affect certain
operations of Hecla. A reserve for mine reclamation costs has been established
for restoring certain abandoned and currently disturbed mining areas based upon
estimates of cost to comply with existing reclamation standards. Mine
reclamation costs for operating properties are accrued using the unit-of-
production method and charged to cost of sales and other direct production
costs. The estimated amount of metals or minerals to be recovered from a mine
site is based on internal and external geological data and is reviewed by
management on a periodic basis. Changes in such estimated amounts which affect
reclamation cost accrual rates are accounted for prospectively from the date of
the change unless they indicate there is a current impairment of an asset's
carrying value and a decision is made to permanently close the property, in
which case they are recognized currently and charged to provision for closed
operations and environmental matters. It is reasonably possible that Hecla's
estimate of its ultimate accrual for reclamation costs will change in the near
term due to possible changes in laws and regulations, and interpretations
thereof, and changes in cost estimates.
<PAGE> 84
H. Remediation of Mining Areas -- Hecla accrues costs associated with
environmental remediation obligations when it is probable that such costs will
be incurred and they are reasonably estimable. Accruals for estimated losses
from environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study and are charged to provision
for closed operations and environmental matters. Costs of future expenditures
for environmental remediation are not discounted to their present value. Such
costs are based on management's current estimate of amounts that are expected to
be incurred when the remediation work is performed within current laws and
regulations. Recoveries of environmental remediation costs from other parties
are recorded as assets when their receipt is deemed probable.
It is reasonably possible that, due to uncertainties associated with
defining the nature and extent of environmental contamination, application of
laws and regulations by regulatory authorities, and changes in remediation
technology, the ultimate cost of remediation could change in the future. Hecla
periodically reviews its accrued liabilities for such remediation costs as
evidence becomes available indicating that its remediation liability has
potentially changed.
I. Income Taxes -- Hecla records deferred tax liabilities and assets for the
expected future income tax consequences of events that have been recognized in
its financial statements. Deferred tax liabilities and assets are determined
based on the temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the temporary differences are expected to reverse.
J. Basic and Diluted Loss Per Common Share -- Basic earnings per share (EPS)
is calculated by dividing loss applicable to common shareholders by the weighted
average number of common shares outstanding for the year. Diluted EPS reflects
the potential dilution that could occur if potentially dilutive securities were
exercised or converted to common stock. Due to the losses in 1999, 1998 and
1997, potentially dilutive securities were excluded from the calculation of
diluted EPS as they were antidilutive. Therefore, there was no difference in
the calculation of basic and diluted EPS in 1999, 1998 and 1997.
K. Revenue Recognition -- Sales of metal products sold directly to smelters
are recorded when title and risk of loss transfer to the smelter, at estimated
metals prices. Recorded values are adjusted periodically and upon final
settlement. Metal in products tolled (rather than sold to smelters) is sold
under contracts for future delivery; such sales are recorded at contractual
amounts when products are available to be processed by the smelter or refinery.
Sales of industrial minerals are recognized as the minerals are shipped.
<PAGE> 85
L. Interest Expense -- Interest costs incurred during the construction of
qualifying assets are capitalized as part of the asset cost.
M. Cash Equivalents -- Hecla considers cash equivalents to consist of highly
liquid investments with a remaining maturity of three months or less when
purchased.
N. Foreign Currency Translation -- Hecla operates in Mexico with its two
wholly owned subsidiaries: Minera Hecla, S.A. de C.V. (Minera Hecla) and K-T
Clay de Mexico, S.A. de C.V. (K-T Mexico). Hecla also operates in Venezuela
with its wholly owned subsidiary Minera Hecla Venezolana, C.A. The functional
currency for Minera Hecla, K-T Mexico and Minera Hecla Venezolana is the U.S.
dollar. Accordingly, Hecla translates the monetary assets and liabilities of
these subsidiaries at the period-end exchange rate while nonmonetary assets and
liabilities are translated at historical rates. Income and expense accounts are
translated at the average exchange rate for each period. Translation
adjustments and transaction gains and losses are reflected in the net loss for
the period.
O. Risk Management Contracts -- In the normal course of its business, Hecla
uses derivative commodity instruments to hedge its exposure to fluctuations in
the prices of certain metals which it produces. The underlying hedged
production is designated at the inception of the hedge. Hecla does not hold or
issue derivative instruments for trading purposes.
Deferral accounting is applied only if the derivatives continue to reduce
the risk associated with the underlying hedged production. Contracted prices on
forward sales contracts and options are recognized in revenues as the designated
production is delivered or sold. In the event of early settlement of hedge
contracts, gains and losses are deferred and recognized in income at the
originally designated delivery date.
P. Accounting for Stock Options -- Hecla measures compensation cost for stock
option plans using the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Hecla also provides the required disclosures of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123).
Q. Comprehensive Loss -- In June 1997, Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Comprehensive Income" was issued. SFAS 130
establishes standards for reporting and display of comprehensive loss and its
components in a full set of general purpose financial statements. Hecla adopted
SFAS 130 in 1998. Accordingly, prior periods presented have been reclassified
to reflect this new standard.
<PAGE> 86
R. New Accounting Pronouncements -- In June 1998, Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities" was issued. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133" was issued. SFAS 137 defers the
effective date of SFAS 133 to all fiscal quarters of all fiscal years beginning
after June 15, 2000; however, earlier application is encouraged as of the
beginning of any fiscal quarter. Hecla is presently evaluating the effect the
adoption of this standard will have on Hecla's financial condition, results of
operations and cash flows.
In April 1998, Statement of Position 98-5 (SOP 98-5), "Reporting on the
Costs of Start-up Activities" was issued. SOP 98-5 provides guidance on the
financial reporting of start-up costs and organizational costs. It requires
costs of start-up activities and organizational costs to be expensed as
incurred, as well as the recognition of a cumulative effect of a change in
accounting principle for retroactive application of the standard. Hecla adopted
SOP 98-5 as required on January 1, 1999. The impact of this change in
accounting principle related to unamortized start-up costs associated with
Hecla's 29.73% ownership interest in the Greens Creek mine. The $1.4 million
cumulative effect of this change in accounting principle is included in the
consolidated statement of operations for the year ended December 31, 1999. Due
to the availability of net operating losses, there was no tax effect associated
with the change.
Note 2: Acquisition of Monarch Resources Investments Limited
On June 25, 1999, Hecla acquired from Monarch Resources Limited all of the
outstanding stock of Monarch Resources Investments Limited, or MRIL, a Bermuda
company, as well as two subsidiaries owned by MRIL. MRIL's principal assets
include the La Camorra gold mine, located in Bolivar State in Venezuela, and the
Saladillo silver exploration property located in the Durango region of Mexico.
The acquisition price of $25.0 million consisted of $9.0 million in cash and
6,700,250 Hecla common shares which are subject to certain trading restrictions.
In addition, MRIL's seller, Monarch Resources Limited, will receive a royalty
payment on future production from purchased assets that exceed the current
resource. Following Hecla's purchase of MRIL, the newly acquired subsidiary was
renamed Hecla Resources Investments Limited (HRIL).
<PAGE> 87
The acquisition of MRIL has been accounted for as a purchase and,
accordingly, Hecla's consolidated financial statements include the financial
position, results of operations and cash flows of MRIL prospectively from June
25, 1999. Approximately $18.7 million of the total purchase price has been
allocated to the mineral properties at La Camorra and is amortized on a units-of
- -production basis over the La Camorra mine life.
The following unaudited pro forma information presents a summary of our
consolidated results of operations and MRIL as if the acquisition had occurred
on January 1, 1998 (in thousands):
1999 1998
--------- ---------
Sales $ 171,181 $ 174,104
========= =========
Loss applicable to common shareholders $ (49,598) $ (15,619)
========= =========
Basic and diluted loss per common share $ (0.76) $ (0.25)
========= =========
Note 3: Inventories
Inventories consist of the following (in thousands):
December 31,
------------------
1999 1998
------- -------
Concentrates, bullion, metals in transit
and other products $ 3,947 $ 3,879
Industrial minerals products 9,275 10,240
Materials and supplies 10,811 8,638
-------- --------
$ 24,033 $ 22,757
======== ========
At December 31, 1999, Hecla had forward sales commitments through December
31, 2004, for 296,195 ounces of gold at an average price of $287.93 per ounce
and forward sales commitments through December 29, 2000, for 1,200,000 ounces of
silver at an average price of $5.51 per ounce. At December 31, 1999, Hecla had
swap contracts through June 2000 for 3,000 metric tons of lead at an average
price of $0.245 per pound and 6,000 metric tons of zinc at an average price of
$0.51 per pound through December 2000. All of the aforementioned contracts were
designated as hedges at December 31, 1999. Hecla is exposed to certain losses,
generally the amount by which the contract price exceeds the spot price of a
commodity, in the event of
<PAGE> 88
nonperformance by the counterparties to these agreements. The London Final gold
price at December 30, 1999, was $290.25 per ounce. The Handy & Harman silver
price at December 30, 1999, was $5.40 per ounce. At December 30, 1999, the LME
cash lead price was $0.217 per pound and the LME cash zinc price was $0.562 per
pound.
Note 4: Properties, Plants and Equipment
The major components of properties, plants and equipment are (in thousands):
December 31,
--------------------
1999 1998
--------- ---------
Mining properties $ 19,748 $ 19,485
Development costs 165,610 147,384
Plants and equipment 223,514 245,216
Land 4,415 4,926
--------- ---------
413,287 417,011
Less accumulated depreciation,
depletion and amortization 222,261 238,843
--------- ---------
Net carrying value $ 191,026 $ 178,168
========= =========
During 1999, Hecla actively marketed for sale its MWCA subsidiary. Based
upon anticipated sales proceeds, Hecla determined that certain adjustments were
necessary to properly reflect the estimated net realizable value of MWCA. These
adjustments, totaling $4.4 million, consisted of write-downs of property, plant
and equipment of $3.2 million, and a write-down of other noncurrent assets of
$1.2 million. See Note 15 of Notes to Consolidated Financial Statements for the
subsequent sale of the Mountain West Products division of MWCA.
In 1998, Hecla sold 11 parcels of land located near Hecla's corporate
headquarters and realized a gain of approximately $3.0 million. Proceeds
included cash receipts of $3.3 million and issuance of three notes receivable
totaling $0.9 million.
Note 5: Environmental and Reclamation Adjustments
In 1999, Hecla recorded charges totaling $27.3 million for future
environmental and reclamation expenditures at the Grouse Creek property and the
Bunker Hill Superfund site. The Grouse Creek mine has been on a care-and-
maintenance status since the second quarter of 1997 following completion of
mining in the Sunbeam pit. The accrual adjustment at Grouse Creek is based upon
anticipated changes to the closure plan developed in the
<PAGE> 89
third quarter of 1999, including increased dewatering requirements and other
expenditures. The changes to the reclamation plan at Grouse Creek were
necessitated principally by the need to dewater the tailings impoundment rather
than reclaim it as a wetland as originally planned. Hecla is currently working
with federal and state agencies on the development of an effective plan for
dewatering the tailings impoundment. At the Bunker Hill Superfund site,
estimated future costs were increased based upon results of sampling activities
completed through 1999 and current cost estimates to remediate residential yards
and commercial properties. Although Hecla has updated its current cost
estimates for the Grouse Creek and Bunker Hill sites, Hecla will continue to
reassess its obligations as new information is developed. Depending on the
results of any reassessment, it is reasonably possible that Hecla's estimate of
its obligations may change in the near term.
Note 6: Income Taxes
Major components of Hecla's income tax provision (benefit) for the years
ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
--------- --------- ---------
Current:
Federal $ - - $ (509) $ 24
State 118 227 345
Foreign (403) (634) 1,528
--------- --------- ---------
Income tax provision (benefit) $ (285) $ (916) $ 1,897
========= ========= =========
Domestic and foreign components of income (loss) before income taxes for
the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
--------- --------- ---------
Domestic $ (34,109) $ (1,177) $ (4,922)
Foreign (4,781) (39) 6,336
--------- --------- ---------
Total $ (38,890) $ (1,216) $ 1,414
========= ========= =========
<PAGE> 90
The components of the net deferred tax liability were as follows (in thousands):
December 31,
------------------------
1999 1998
-------- --------
Deferred tax assets:
Accrued reclamation costs $ 16,785 $ 10,130
Investment valuation differences 2,172 2,113
Capital loss carryover 603 1,633
Postretirement benefits other
than pensions 1,177 1,034
Deferred compensation 1,731 1,332
Accounts receivable 456 456
Foreign net operating losses 13,699 3,478
Federal net operating losses 91,687 91,323
State net operating losses 11,288 10,022
Tax credit carryforwards 2,344 3,070
Miscellaneous 1,522 1,446
-------- --------
Total deferred tax assets 143,464 126,037
Valuation allowance (139,852) (115,654)
-------- --------
Net deferred tax assets 3,612 10,383
-------- --------
Deferred tax liabilities:
Properties, plants and equipment (833) (7,786)
Deferred income - - (58)
Pension costs (2,561) (2,085)
Inventories (218) (454)
Deferred state income taxes, net (300) (300)
-------- --------
Total deferred tax liabilities (3,912) (10,683)
-------- --------
Net deferred tax liability $ (300) $ (300)
======== ========
Hecla recorded a valuation allowance to reflect the estimated amount of
deferred tax assets which may not be realized principally due to the expiration
of net operating losses and tax credit carryforwards. The changes in the
valuation allowance for the years ended December 31, 1999, 1998 and 1997 are as
follows (in thousands):
<PAGE> 91
1999 1998 1997
---------- ---------- ----------
Balance at beginning of year $ (115,654) $ (112,478) $ (107,937)
Increase related to nonutilization
of net operating loss carry-
forwards and nonrecognition of
deferred tax assets due to
uncertainty of recovery (24,198) (3,176) (4,541)
---------- ---------- ----------
Balance at end of year $ (139,852) $ (115,654) $ (112,478)
========== ========== ==========
The annual tax provision (benefit) is different from the amount which would
be provided by applying the statutory federal income tax rate to Hecla's pretax
income (loss). The reasons for the difference are (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ------------------ ------------------
<S> <C> <C> <C>
Computed "statutory"
provision (benefit) $ (13,223) (34)% $ (413) (34)% $ 481 34%
Nonutilization of net
operating losses and
effect of foreign taxes 12,820 33 (730) (60) 1,188 84
State income taxes, net
of federal tax benefit 118 - - 227 19 228 16
---------- ---- -------- ---- -------- ----
$ (285) (1)% $ (916) (75)% $ 1,897 134%
========== ==== ======== ==== ======== ====
</TABLE>
As of December 31, 1999, for income tax purposes, Hecla has operating loss
carryovers of $269.7 million and $132.0 million for regular and alternative
minimum tax purposes, respectively. These operating loss carryovers
substantially expire over the next 15 to 20 years, the majority of which expire
between 2006 and 2012. In addition, Hecla has foreign tax operating losses of
approximately $40.0 million which expire prior to 2003 and investment tax credit
carryovers of $0.4 million which expire prior to 2002. Approximately $15.0
million and $8.0 million of regular and alternative minimum tax loss carryovers,
respectively, are subject to limitations in any given year due to mergers.
Hecla has approximately $0.9 million in alternative minimum tax credit
carryovers eligible to reduce future regular tax liabilities.
<PAGE> 92
Note 7: Long-Term Debt and Credit Agreement
Long-term debt consists of the following (in thousands):
December 31,
-----------------------
1999 1998
--------- ---------
Revolving credit agreement $ 32,500 $ 33,000
Revenue bonds 9,800 9,800
Project financing debt 10,500 - -
Subordinated bank debt 3,000 - -
Other long-term debt 77 213
--------- ---------
55,877 43,013
Less current portion (782) (90)
--------- ---------
$ 55,095 $ 42,923
========= =========
Future minimum debt repayments associated with long-term debt as of
December 31, 1999 are as follows (in thousands):
Year ending December 31,
------------------------
2000 $ 782
2001 3,295
2002 19,250
2003 21,250
2004 1,500
Thereafter 9,800
-------
Total long-term debt repayments $55,877
=======
Revolving Credit Agreement
On May 7, 1999, Hecla entered into a restated credit agreement which
replaced the prior facility entered into on August 11, 1997. On June 25, 1999,
August 31, 1999, December 20, 1999, and December 30, 1999, Hecla amended its
revolving and term loan credit facility (as amended, the Bank Agreement). Under
the terms of the Bank Agreement, Hecla may borrow up to $55.0 million, subject
to certain limitations, on a revolving credit basis through December 31, 2001,
repayable in eight quarterly installments beginning March 31, 2002. During the
commitment period, Hecla pays an annual facility fee ranging from $192,500 to
$275,000, the amount of which is based on average quarterly borrowings. The
Bank Agreement includes certain collateral
<PAGE> 93
provisions, including the pledging of the common stock of certain of Hecla's
subsidiaries and providing the lenders a security interest in accounts
receivable and inventory. Under the Bank Agreement, Hecla is required to
maintain certain financial ratios, and meet certain net worth and indebtedness
tests. Hecla was in compliance with all covenants as of December 31, 1999.
Amounts available for borrowing under the Bank Agreement are based on a defined
debt capacity test. At December 31, 1999, Hecla had borrowings of $32.5 million
under the Bank Agreement. The amount available to borrow is reduced by the $9.8
million amount of tax-exempt solid waste disposal bonds outstanding (described
below). At December 31, 1999, Hecla had the ability to borrow an additional
$12.7 million under the Bank Agreement. The interest rate for borrowing under
the Bank Agreement as of December 31, 1999 was 9.0%. Interest rates are based
on LIBOR or the prime rate and may vary based upon Hecla's debt level. See Note
15 of Notes to Consolidated Financial Statements for subsequent refinancing
activity.
Revenue Bonds
On July 30, 1997, Hecla issued $9.8 million aggregate principal amount of
tax-exempt, solid waste disposal revenue bonds. The net proceeds of
approximately $9.6 million from the issuance were initially used to pay down
debt under Hecla's existing revolving and term loan credit facility. The bonds
mature on July 1, 2007. The payment of the unpaid principal and up to $140,959
of interest (35 days at an annual rate of 15%) on the bonds is collateralized by
an irrevocable, direct-pay letter of credit, which will expire on July 31, 2000,
unless extended. The letter of credit has a fee of 1.7% of the amount of the
letter of credit. The bonds initially bear interest at the weekly rate as
determined by the remarketing agent. At Hecla's option, the weekly rate may be
converted to a fixed rate or variable rate. While the bonds bear interest at
the weekly rate or the flexible rate, the bonds are redeemable at the option of
Hecla, in whole or in increments of $100,000, upon at least 30 days written
notice. Certain restrictions are applicable to optional redemptions while the
bonds bear interest at the fixed rate. At December 31, 1999, there was $9.8
million in revenue bonds outstanding. The interest rate on the bonds as of
December 31, 1999, was 5.6%.
Project Financing and Subordinated Debt
On June 25, 1999, Hecla's newly acquired, wholly owned subsidiary, HRIL,
entered into a credit agreement to provide project financing of up to $11.0
million, nonrecourse to Hecla, to finance the acquisition of MRIL (see Note 2).
HRIL granted a security interest over the stock of its Venezuelan subsidiary,
certain Venezuelan real property assets and all cash proceeds of the newly
acquired La Camorra mine. HRIL must maintain compliance with certain financial
and other restrictive covenants related to the available ore reserves and
financial performance of the La
<PAGE> 94
Camorra mine. HRIL borrowed $10.5 million pursuant to the terms of the project
financing agreement, which is repayable in nine semiannual payments beginning
June 30, 2000. At December 31, 1999, HRIL had outstanding, pursuant to the
project financing agreement, $10.5 million principal amount. In connection with
the project financing agreement, as of June 25, 1999, Hecla entered into a
subordinated loan agreement which provided a $3.0 million zero coupon loan,
subordinate to Hecla's existing $55.0 million revolving and term loan credit
facility, repayable in three semiannual payments beginning June 30, 2003. The
entire $3.0 million subordinated loan was outstanding at December 31, 1999. The
terms of the subordinated loan agreement provide that Hecla must maintain
compliance with the financial covenants of Hecla's $55.0 million credit
agreement. The interest rates for borrowing under the project financing and
subordinated debt agreements were 8.7% and 10.2%, respectively, as of December
31, 1999. The interest rates in the subordinated loan agreement and the project
financing agreement are based on the London Interbank Offered Rates.
Additionally, HRIL sold forward 306,045 ounces of gold on a quarterly basis over
the period December 1999 to December 2004, at a flat forward price of $288.25
per ounce, and as a portion of the sale, entered into an agreement specifying a
quarterly Gold Lease Rate Swap at a fixed rate of 1.5% on the outstanding volume
of the above forward sales, commencing June 2000.
Note 8: Commitments and Contingencies
Commitments
Hecla leases various facilities and equipment under noncancelable operating
lease arrangements. The major facilities and equipment leases are for terms of
two to six years. Future minimum lease payments under these noncancelable
operating leases as of December 31, 1999, are as follows (in thousands):
Year ending December 31,
------------------------
2000 $ 3,314
2001 2,398
2002 1,671
2003 699
2004 251
Thereafter 54
-------
Total minimum lease payments $ 8,387
=======
Rent expense incurred for operating leases during the years ended December
31, 1999, 1998 and 1997 was approximately $3.9 million, $3.9 million and $4.8
million, respectively.
<PAGE> 95
Contingencies
- - Bunker Hill Superfund Site
In 1994, Hecla, as a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA),
entered into a consent decree with the Environmental Protection Agency (EPA) and
the state of Idaho, concerning environmental remediation obligations at the
Bunker Hill Superfund site located at Kellogg, Idaho. The consent decree
settled Hecla's response-cost liability under CERCLA at the Bunker Hill site.
As of December 31, 1999, Hecla has estimated and accrued an allowance for
liability for remedial activity costs at the Bunker Hill site of $7.5 million.
These estimated expenditures are anticipated to be made over the next three to
five years. Although Hecla believes the allowance is adequate based upon
current estimates of aggregate costs, Hecla will reassess its obligations under
the consent decree as new information is developed. Depending on the results of
any reassessment, it is reasonably possible that Hecla's estimate of its
obligations may change in the near term.
- - Coeur d'Alene River Basin Natural Resource Damage Claims
- Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under
CERCLA, in Idaho Federal District Court against Hecla and a number of other
mining companies asserting claims for damages to natural resources downstream
from the Bunker Hill site over which the tribe alleges some ownership or
control. Hecla answered the Tribe's complaint denying liability for natural
resource damages. In October 1996, following a court imposed four-year
suspension of the proceeding, the Tribe's natural resource damage litigation was
consolidated with the United States Natural Resources Damage litigation
described below for discovery and other limited pretrial purposes.
- U.S. Government Claims
In March 1996, the United States filed a lawsuit in Idaho Federal District
Court against certain mining companies that conducted historic mining operations
in the Silver Valley of northern Idaho, including Hecla. The lawsuit asserts
claims under CERCLA and the Clean Water Act and seeks recovery for alleged
damages to or loss of natural resources located in the Coeur d'Alene River Basin
in northern Idaho for which the United States asserts to be the trustee under
CERCLA. The lawsuit asserts that the defendants' historic mining activity
resulted in releases of hazardous substances and damaged natural resources
within the Basin. The suit also seeks declaratory relief that Hecla and other
defendants are jointly and severally liable for response costs under CERCLA for
historic mining impacts in the Basin outside the Bunker Hill site. Hecla
answered the complaint
<PAGE> 96
in May 1996, denying liability to the United States under CERCLA and the Clean
Water Act and asserted a counterclaim against the United States for the federal
government's involvement in mining activities in the Basin which contributed to
the releases and damages alleged by the United States. Hecla believes it also
has a number of defenses to the United States' claims.
In May 1998, the EPA announced that it had commenced a remedial
investigation/feasibility study under CERCLA for the entire Basin, including
Lake Coeur d'Alene, in support of its response cost claims asserted in its March
1996 lawsuit.
On September 30, 1998, the Federal District Court granted Hecla's summary
judgment motion with respect to the applicable statute of limitations and
dismissed the United States' natural resources damage claims due to the failure
of the EPA to comply with federal law and EPA regulations in expanding the
national priority list site boundaries to include the entire Coeur d'Alene
River/Lake Coeur d'Alene Basin which would have the effect of extending the
statute of limitations. The United States has appealed the Federal District
Court's decision to the Ninth Circuit Court of Appeals. The Federal District
Court case is proceeding through discovery. On March 31, 1999, the court issued
a case management order setting trial in this case for November 2000. On
September 30, 1999, the court issued an order on one of the defendant's
challenge to the constitutionality of the retroactive application of liability
under CERCLA. Although the court held that the statute did not facially violate
the due process or taking clauses of the U.S. Constitution, the court also
stated that the constitutionality of retroactive application of liability to the
defendants in this case cannot be resolved at this stage of litigation as
genuine issues of material fact exist and liability has not been established.
- - Insurance Coverage Litigation
In 1991, Hecla initiated litigation in the Idaho State District Court in
Kootenai County, Idaho, against a number of insurance companies which provided
comprehensive general liability insurance coverage to Hecla and its
predecessors. Hecla believes that the insurance companies have a duty to defend
and indemnify Hecla under their policies of insurance for all liabilities and
claims asserted against Hecla by the EPA and the tribe under CERCLA related to
the Bunker Hill site and the Basin in northern Idaho. In 1992, the Idaho State
District Court ruled that the primary insurance companies had a duty to defend
Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into
settlement agreements with a number of the insurance carriers named in the
litigation. Hecla has received a total of approximately $7.2 million under the
terms of the settlement agreements. Thirty percent of these settlements were
paid to the EPA to reimburse the U.S. government for past costs under the Bunker
Hill site consent decree. Litigation is still pending against one insurer with
trial suspended until the underlying
<PAGE> 97
environmental claims against Hecla are resolved or settled. The remaining
insurer in the litigation with a second insurer not named in the litigation are
providing Hecla with a partial defense in all Basin environmental litigation.
As of December 31, 1999, Hecla had not reduced its accrual for reclamation and
closure costs to reflect the receipt of any anticipated insurance proceeds.
- - Other Claims
In 1997, Hecla's subsidiary, Kentucky-Tennessee Clay, terminated shipments
of 1% of annual ball clay production, sold to animal feed producers, when the
Food and Drug Administration determined trace elements of dioxin were present in
poultry. Dioxin is inherently present in ball clays generally. Hecla believes
$11.0 million of insurance coverage is available for approximately $9.2 million
in claims to date. On September 22, 1999, Riceland Foods (the primary purchaser
of ball clay from K-T Clay used in animal feed) commenced litigation against K-T
Clay in State Court in Arkansas to recover their losses and their insurance
company's payments to downstream users of their animal feed. The complaint
alleges negligence, strict liability and breach of implied warranties. Legal
counsel retained by the insurance company for K-T Clay has had the case removed
to Federal Court in Arkansas and has answered the complaint denying liability.
Although the outcome of the litigation or insurance coverage cannot be assured,
Hecla believes that there will be no material adverse effect on Hecla's results
of operations, financial condition or cash flows from this matter.
On October 22, 1998, Hecla, certain affiliates, and contractors were served
with a lawsuit filed in Superior Court of Kern County, California. The
complaint pertains to the prior operations at the now shut-down Cactus Gold mine
located near Mojave, California. The plaintiffs allege that during the period
from 1960 through the present, the named defendants' operations and activities
caused personal injury and property damage to the plaintiffs. The plaintiffs
seek monetary damages for general negligence, nuisance, trespass, statutory
violations, ultrahazardous activities, strict liability and other torts. Hecla
has provided notice and demand for defense/indemnity to its insurance carriers
providing liability insurance coverage for the Cactus Gold mine operation. One
carrier has agreed to provide a partial defense of the litigation costs. Hecla
has retained outside counsel to defend Hecla. Based on a prior health risk
assessment completed for the operation as required by the state of California
and information obtained from the plaintiffs in early discovery in the
litigation, Hecla believes the allegations are without merit. In addition,
legal counsel for plaintiffs have filed voluntary dismissals on behalf of a
portion of the plaintiffs named in the litigation.
<PAGE> 98
Hecla is subject to other legal proceedings and claims which have arisen in
the ordinary course of its business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate disposition of these
matters and the proceedings disclosed above, it is the opinion of Hecla's
management that the outcome of these matters will not have a material adverse
effect on the financial condition of Hecla. However, it is possible that these
matters could have a material effect on quarterly or annual operating results
and cash flows, when they are resolved, in future periods.
Note 9: Employee Benefit Plans
Hecla and certain subsidiaries sponsor defined benefit pension plans
covering substantially all employees. Hecla also provides certain
postretirement benefits, principally health care and life insurance benefits for
qualifying retired employees.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ended
December 31, 1999, and a statement of the funded status as of December 31, 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 41,312 $ 37,991 $ 2,055 $ 1,915
Service cost 1,289 1,111 23 18
Interest cost 2,611 2,581 155 134
Plan amendments 1,481 183 429 - -
Actuarial (gain) loss (373) 1,739 (117) 77
Benefits paid (2,509) (2,293) (127) (89)
--------- --------- --------- ---------
Benefit obligation at end of year 43,811 41,312 2,418 2,055
--------- --------- --------- ---------
Change in plan assets
Fair value of plan assets at
beginning of year 51,248 51,684 - - - -
Actual return on plan assets 9,821 1,688 - - - -
Employer contributions 161 169 127 89
Benefits paid (2,509) (2,293) (127) (89)
--------- --------- --------- ---------
Fair value of plan assets at end of year 58,721 51,248 - - - -
--------- --------- --------- ---------
Funded status at end of year 14,910 9,936 (2,418) (2,055)
Unrecognized net actuarial gain (10,666) (5,028) (269) (158)
Unrecognized transition asset (884) (1,313) - - - -
Unrecognized prior-service cost 3,065 1,796 361 - -
--------- --------- --------- ---------
Net amount recognized in consolidated
balance sheets $ 6,425 $ 5,391 $ (2,326) $ (2,213)
========= ========= ========= =========
</TABLE>
<PAGE> 99
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Prepaid benefit costs $ 7,768 $ 6,405 $ - - $ - -
Accrued benefit liability (2,411) (2,285) (2,326) (2,213)
Intangible asset 1,068 982 - - - -
Accumulated other comprehensive loss - - 289 - - - -
--------- --------- --------- ---------
Net amount recognized $ 6,425 $ 5,391 $ (2,326) $ (2,213)
========= ========= ========= =========
</TABLE>
The benefit obligation was calculated by applying the following weighted-
average assumptions:
Pension Benefits Other Benefits
-------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Discount rate 7.00% 6.50% 7.00% 6.50%
Expected rate on plan assets 9.00% 9.00% - - - -
Rate of compensation increase 4.00% 4.00% - - - -
Net periodic pension cost (income) for the plans consisted of the following
in 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,289 $ 1,111 $ 1,007 $ 23 $ 18 $ 15
Interest cost 2,611 2,581 2,443 155 134 143
Expected return on plan assets (4,516) (4,557) (3,962) - - - - - -
Amortization of transition asset (152) (429) (429) - - - - - -
Amortization of unrecognized prior
service cost 211 206 206 - - - - - -
Amortization of unrecognized net
gain from earlier periods (316) (403) (380) (116) 77 (56)
-------- -------- -------- -------- -------- --------
Net periodic pension cost (income) $ (873) $ (1,491) $ (1,115) $ 62 $ 229 $ 102
======== ======== ======== ======== ======== ========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $5,695,000, $5,315,000 and $3,491,000, respectively,
as of December 31, 1999, and $5,447,000, $4,808,000 and $2,953,000,
respectively, as of December 31, 1998.
Hecla has a nonqualified Deferred Compensation Plan which permits eligible
officers, directors and key employees to defer a portion of their compensation.
In November 1998, Hecla amended the plan to permit participants to transfer all
or a portion of their deferred compensation amounts into a Company common stock
<PAGE> 100
account to be held in trust until distribution. As of December 31, 1999, a
total of 132,290 shares of Hecla's common stock are held in the grantor trust.
Shares held in the grantor trust are valued at fair value at the time of
issuance, are recorded in the contra equity account "Stock held by grantor
trust," and are legally outstanding for registration purposes and dividend
payments. The shares held in the grantor trust are considered outstanding for
purposes of calculating loss per share. The deferred compensation, together
with Company matching amounts and accumulated interest, is distributable in cash
after retirement or termination of employment, and at December 31, 1999 and
1998, amounted to approximately $4.0 and $3.9 million, respectively.
Hecla has an employees' Capital Accumulation Plan which is available to all
salaried and certain hourly employees after completion of six months of service.
Employees may contribute from 2% to 15% of their compensation to the plan.
Hecla makes a matching contribution of 25% of an employee's contribution up to,
but not exceeding, 6% of the employee's earnings. Hecla's contribution was
approximately $274,000 in 1999 and 1998 and $263,000 in 1997.
Hecla has an employee's 401(k) plan which is available to all hourly
employees at Hecla's Lucky Friday mine after completion of six months of
service. Employees may contribute from 2% to 15% of their compensation to the
plan. Hecla makes a matching contribution of 25% of an employee's contribution
up to, but not exceeding, 5% of the employee's earnings. Hecla's contribution
was approximately $50,000 in 1999, $46,000 in 1998 and $34,000 in 1997.
Note 10: Shareholders' Equity
Preferred Stock
Hecla has 2.3 million shares of Series B Cumulative Convertible Preferred
Stock (the Preferred Shares) outstanding. Holders of the Preferred Shares are
entitled to receive cumulative cash dividends at the annual rate of $3.50 per
share payable quarterly, when and if declared by the Board of Directors.
The Preferred Shares are convertible, in whole or in part, at the option of
the holders thereof, into shares of common stock at an initial conversion price
of $15.55 per share of common stock. The Preferred Shares were not redeemable
by Hecla prior to July 1, 1996. After such date, the shares are redeemable at
the option of Hecla at any time, in whole or in part, initially at $52.45 per
share and thereafter at prices declining ratably on each July 1 to $50.00 per
share on or after July 1, 2003.
Holders of the Preferred Shares have no voting rights except if Hecla fails
to pay the equivalent of six quarterly dividends. If these dividends are not
paid, the holders of Preferred Shares, voting as a class, shall be entitled to
elect two additional directors. The holders of Preferred Shares also have
voting rights related to certain amendments to Hecla's Articles of
Incorporation.
<PAGE> 101
The Preferred Shares rank senior to the common stock and any outstanding
shares of Series A Preferred Shares. The Preferred Shares have a liquidation
preference of $50.00 per share plus all declared and unpaid dividends which
total $117,012,000 at December 31, 1999.
Shareholder Rights Plan
In 1996, Hecla adopted a replacement Shareholder Rights Plan. Pursuant to
this plan, holders of common stock received one preferred share purchase right
for each common share held. The rights will be triggered once an Acquiring
Person, as defined in the plan, acquires 15% or more of Hecla's outstanding
common shares. The 15% triggering threshold may be reduced by the Board of
Directors to not less than 10%. When exercisable, the right would, subject to
certain adjustments and alterations, entitle rightholders, other than the
Acquiring Person or group, to purchase common stock of Hecla or the acquiring
company having a market value of twice the $50 exercise price of the right. The
rights are nonvoting, may be redeemed at any time at a price of one cent per
right, and expire in May 2006. Additional details regarding the rights are set
forth in the Rights Agreement filed with the Securities and Exchange Commission
on May 10, 1996.
Stock Based Plans
At December 31, 1999, executives, key employees and directors had been
granted options to purchase common shares or were credited with common shares
under the stock based plans described below. Hecla has adopted the disclosure-
only provisions of SFAS 123. No compensation expense has been recognized in
1999, 1998 or 1997 for unexercised options related to the stock option plans.
Had compensation cost for Hecla's stock option plans been determined based on
the fair market value at the grant date for awards in 1999, 1998 and 1997
consistent with the provisions of SFAS 123, Hecla's loss and per share loss
applicable to common shareholders would have been increased to the pro forma
amounts indicated below (in thousands, except per share amounts):
1999 1998 1997
-------- -------- --------
Loss applicable to common
shareholders:
As reported $ 48,040 $ 8,350 $ 8,533
Pro forma $ 49,060 $ 9,420 $ 9,229
Loss applicable to common
shareholders per share:
As reported $ 0.77 $ 0.15 $ 0.16
Pro forma $ 0.79 $ 0.17 $ 0.17
<PAGE> 102
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
1999 1998 1997
--------- --------- ---------
Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 50.87% 49.57% 45.31%
Risk-free interest rate 4.79% 4.79% 6.42%
Expected life of options 4.1 years 4.1 years 4.1 years
The weighted average fair value of options granted in 1999, 1998 and 1997
was $1.19, $2.45 and $2.27, respectively.
Hecla adopted a nonstatutory stock option plan in 1987. The plan provides
that options may be granted to certain officers and key employees to purchase
common stock at a price of not less than 50% of the fair market value at the
date of grant. The plan also provides that options may be granted with a
corresponding number of stock appreciation rights and/or tax offset bonuses to
assist the optionee in paying the income tax liability that may exist upon
exercise of the options. All of the outstanding stock options under the 1987
plan were granted at an exercise price equal to the fair market value at the
date of grant and with an associated tax offset bonus. Outstanding options
under the 1987 plan are immediately exercisable for periods up to ten years.
During 1999, 1998 and 1997, respectively, 58,500, 12,000 and 53,577 options to
acquire shares expired under the 1987 plan. The ability to grant further
options under the plan expired on February 13, 1997.
In 1995, the shareholders of Hecla approved the 1995 Stock Incentive Plan
which provides for a variety of stock-based grants to Hecla's officers and key
employees. The plan provides for the grant of stock options, stock appreciation
rights, restricted stock and performance units to eligible officers and key
employees of Hecla. Stock options under the plan are required to be granted at
100% of the market value of the stock on the date of the grant. The terms of
such options shall be no longer than ten years from the date of grant. During
1999, 1998 and 1997, respectively, 739,500, 708,000 and 480,500 options to
acquire shares were granted to Hecla's officers and key employees of which
630,000, 585,000 and 348,000, respectively, of these options to acquire shares
were granted with vesting requirements. During 1999 and 1998, respectively,
27,000 and 11,500 options to acquire shares expired under the 1995 plan. At
December 31, 1999, there were 834,000 options to acquire shares available for
future grant under the 1995 plan.
In 1995, Hecla adopted the Hecla Mining Company Stock Plan for Nonemployee
Directors (the Directors' Stock Plan), which may be terminated by the Board of
Directors at any time. Each nonemployee director is credited with 1,000 shares
of Hecla's
<PAGE> 103
common stock on May 30 of each year. Nonemployee directors joining the Board of
Directors after May 30 of any year are credited with a pro-rata number of shares
based upon the date they join the Board. All credited shares are held in trust
for the benefit of each director until delivered to the director. Delivery of
the shares from the trust occurs upon the earliest of (1) death or disability;
(2) retirement; (3) a cessation of the director's service for any other reason;
or (4) a change in control of Hecla. Subject to certain restrictions, directors
may elect to receive delivery of shares on such date or in annual installments
thereafter over 5, 10 or 15 years. The shares of common stock credited to
nonemployee directors pursuant to the Directors' Stock Plan may not be sold
until at least six months following the date they are delivered. The maximum
number of shares of common stock which may be granted pursuant to the Directors'
Stock Plan is 120,000. During 1999, 1998 and 1997, respectively, 8,000, 8,404
and 7,000 shares were credited to the nonemployee directors. During 1999, 1998
and 1997, $20,000, $42,000 and $41,000, respectively, were charged to operations
associated with the Directors' Stock Plan. At December 31, 1999, there were
83,057 shares available for grant in the future under the plan.
Transactions concerning stock options pursuant to all of the above-
described stock option plans are summarized as follows:
Weighted Average
Shares Exercise Price
----------- ------------------
Outstanding, December 31, 1996 545,992 $ 9.37
Year ended December 31, 1997
Granted 480,500 $ 5.63
Expired (53,577) $ 10.50
---------
Outstanding, December 31, 1997 972,915 $ 7.46
Year ended December 31, 1998
Granted 708,000 $ 5.88
Exercised (2,000) $ 5.63
Expired (23,500) $ 8.85
---------
Outstanding, December 31, 1998 1,655,415 $ 6.76
Year ended December 31, 1999
Granted 739,500 $ 2.88
Exercised (1,500) $ 2.88
Expired (85,500) $ 10.14
---------
Outstanding, December 31, 1999 2,307,915 $ 5.39
=========
<PAGE> 104
The following table displays exercisable stock options and the weighted-
average exercise price of the exercisable options as of December 31, 1999, 1998
and 1997:
1999 1998 1997
--------- -------- --------
Exercisable options 1,302,215 892,615 565,515
Weighted-average exercise price $ 6.06 $ 7.34 $ 8.15
The following table presents information about the stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
----------------------------
Range of Remaining
Shares Exercise Price Exercise Price Life(Years)
--------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Exercisable options 265,500 $ 2.88 - $ 2.88 $ 2.88 9
Exercisable options 893,300 $ 5.63 - $ 8.63 $ 6.39 8
Exercisable options 143,415 $ 9.32 - $10.50 $ 9.88 4
---------
Total exercisable options 1,302,215 $ 2.88 - $10.50 $ 6.06 8
Unexercisable options 1,005,700 $ 2.88 - $ 8.63 $ 4.54 9
---------
Total all options 2,307,915 $ 2.88 - $10.50 $ 5.39 8
=========
</TABLE>
No amounts were charged (credited) to operations in connection with the
stock option plans in 1999, 1998 or 1997.
Common Stock Offerings
In March 1999, Hecla issued 155,955 shares of its common stock realizing
proceeds of approximately $0.5 million, net of issuance costs. In May 1999,
Hecla issued 4,582,852 shares of its common stock realizing proceeds of
approximately $11.4 million, net of approximately $0.6 million of issuance
costs. In connection with the shares sold in May, Hecla issued 1,603,998
warrants to purchase Hecla common stock. Each warrant entitles the holder to
purchase one share of common stock at an exercise price equal to the lesser of
(i) $3.19 and (ii) 102% of the volume weighted average price on the NYSE for
each trading day during the ten consecutive trading days immediately preceding
the date that notice of exercise is given to Hecla. These warrants are
exercisable until May 11, 2002. In September 1999, 97,000 warrants were
exercised and Hecla issued 97,000 shares of its common stock. Proceeds of $0.3
million were realized from the exercise of the warrants. At December 31, 1999,
1,506,998 warrants remain outstanding.
In February 1997, Hecla issued 3,950,000 shares of its common stock
realizing proceeds of approximately $23.4 million, net of issuance costs of
approximately $1.3 million.
<PAGE> 105
Shares of the equity offerings were sold under Hecla's existing
Registration Statement on Form S-3 which provides for the issuance of up to
$100.0 million of equity and debt securities. Hecla used the net proceeds from
the equity offerings for general corporate purposes including repayment of
indebtedness under the existing $55.0 million bank credit agreement.
Note 11: Business Segments
In 1998, Hecla adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise" replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of Hecla's
reportable segments. SFAS 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of SFAS 131
revised the disclosure of segment information.
The accounting policies of the segments are the same as those described in
Note 1. Segment data excludes intrasegment revenues. Hecla evaluates the
performance of its segments and allocates resources to them based on income
(loss) from operations.
Hecla is organized and managed primarily on the basis of the principal
products being produced from its eleven operating units. Three of the operating
units have been aggregated into the Metals-Gold segment, two of the operating
units have been aggregated into the Metals-Silver segment, and six operating
units have been combined to form the Industrial Minerals segment. General
corporate activities not associated with operating units as well as idle
properties are presented as Other.
<PAGE> 106
The tables below present information about reportable segments as of and
for the years ended December 31 (in thousands):
1999 1998 1997
--------- --------- --------
Net sales to unaffiliated customers:
Metals-Gold $ 23,588 $ 32,791 $ 56,257
Metals-Silver 50,115 42,317 33,229
Industrial Minerals 89,911 84,123 74,462
-------- -------- --------
$163,614 $159,231 $163,948
======== ======== ========
Income (loss) from operations:
Metals-Gold $ (6,848) $ 269 $ 7,339
Metals-Silver 1,913 (1,196) (4,619)
Industrial Minerals 5,320 5,153 4,072
Other (38,045) (8,706) (6,295)
-------- -------- --------
$(37,660) $ (4,480) $ 497
======== ======== ========
Capital expenditures:
Metals-Gold $ 7,788 $ 6,233 $ 6,536
Metals-Silver 3,418 10,130 14,018
Industrial Minerals 2,221 6,100 3,610
Other 40 32 630
-------- -------- --------
$ 13,467 $ 22,495 $ 24,794
======== ======== ========
Depreciation, depletion and amortization:
Metals-Gold $ 7,706 $ 7,522 $ 7,526
Metals-Silver 10,956 9,648 8,707
Industrial Minerals 4,755 5,036 4,776
Other 321 389 311
-------- -------- --------
$ 23,738 $ 22,595 $ 21,320
======== ======== ========
Other significant noncash items:
Metals-Gold $ 240 $ 145 $ 2,433
Metals-Silver 1,911 211 183
Industrial Minerals 4,638 223 226
Other 27,787 734 (1,777)
-------- -------- --------
$ 34,576 $ 1,313 $ 1,065
======== ======== ========
<PAGE> 107
1999 1998 1997
-------- --------- --------
Identifiable assets:
Metals-Gold $ 56,018 $ 23,808 $ 28,304
Metals-Silver 121,814 127,499 122,553
Industrial Minerals 65,580 71,593 68,413
Other 24,945 29,162 31,398
-------- -------- --------
$268,357 $252,062 $250,668
======== ======== ========
The following is sales information by geographic area for the years ended
December 31 (in thousands):
1999 1998 1997
-------- -------- --------
United States $107,298 $113,722 $124,917
Canada 19,324 8,963 11,003
Mexico 16,162 19,981 6,946
United Kingdom 8,998 6,951 4,463
Japan 2,757 2,496 5,248
Belgium 1,300 - - 5,309
Other foreign 7,775 7,118 6,062
-------- -------- --------
$163,614 $159,231 $163,948
======== ======== ========
The following is sales information by country of origin for the years ended
December 31 (in thousands):
1999 1998 1997
-------- -------- --------
United States $147,186 $140,320 $131,979
Mexico 12,180 18,911 31,969
Venezuela 4,248 - - - -
-------- -------- --------
$163,614 $159,231 $163,948
======== ======== ========
<PAGE> 108
The following is properties, plants and equipment information by geographic
area as of December 31 (in thousands):
1999 1998 1997
--------- --------- ---------
United States $ 148,644 $ 170,058 $ 176,955
Venezuela 31,490 - - - -
Mexico 10,858 8,056 3,038
Other South American 34 54 44
--------- --------- ---------
$ 191,026 $ 178,168 $ 180,037
========= ========= =========
Sales to significant metals customers, including both the Metals-Gold and
Metals-Silver segments, as a percentage of total sales from the Metals-Gold and
Metals-Silver segments, were as follows for the years ended December 31:
1999 1998 1997
--------- --------- ---------
Customer A 20.7% 19.5% 12.8%
Customer B 14.5% 2.1% 1.3%
Customer C 12.1% 6.3% 8.8%
Customer D 6.9% 10.3% 0.0%
Customer E 4.1% 12.3% 19.8%
Customer F 0.0% 24.0% 30.1%
Note 12: Fair Value of Financial Instruments
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data and to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts Hecla could realize in a current market
exchange.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. Potential income tax ramifications related to the realization of
unrealized gains and losses that would be incurred in an actual sale or
settlement have not been taken into consideration.
The carrying amounts for cash and cash equivalents, accounts and notes
receivable, restricted investments and current liabilities are a reasonable
estimate of their fair values. Fair value for equity securities investments is
determined by quoted market prices. Fair value of forward contracts, commodity
swap contracts and options contracts are supplied by Hecla's counterparties and
reflect the difference between the contract
<PAGE> 109
prices and forward prices available on the date of valuation. The fair value of
long-term debt is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for debt with
similar remaining maturities.
The estimated fair values of financial instruments are as follows (in
thousands):
December 31,
-------------------------------------------
1999 1998
-------------------- --------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
--------- --------- --------- ---------
Financial assets:
Cash and cash equivalents $ 2,719 $ 2,719 $ 2,480 $ 2,480
Accounts and notes receivable 29,194 29,194 25,919 25,919
Investments
Equity securities available
for sale 86 86 72 72
Restricted 5,998 5,998 6,331 6,331
Gold forward sales contracts - - - - - - 371
Silver forward sales contracts - - 90 - - 740
Lead swap contracts - - 136 - - - -
Financial liabilities:
Current liabilities 30,076 30,076 24,345 24,345
Long-term debt - principal 55,095 55,095 42,923 42,923
Gold forward sales contracts - - 7,611 - - - -
Gold lease rate swap - - 2,019 - - - -
Zinc swap contracts - - 560 - - - -
Silver call options 33 33 - - - -
<PAGE> 110
Note 13: Loss per Common Share
The following table presents a reconciliation of the numerators (net loss)
and denominators (shares) used in the basic and diluted loss per common share
computations. Also shown is the effect that has been given to preferred
dividends in arriving at loss applicable to common shareholders for the years
ended December 31, 1999, 1998 and 1997 in computing basic and diluted loss per
common share (dollars and shares in thousands, except per share amounts).
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Per Share Per Share Per Share
Net Loss Shares Amount Net Loss Shares Amount Net Loss Shares Amount
----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss before preferred
stock dividends $ (39,990) $ (300) $ (483)
Less: Preferred
stock dividends (8,050) (8,050) (8,050)
--------- --------- ---------
Basic loss per common share
Loss applicable
to common
shareholders (48,040) 62,347 $ (0.77) (8,350) 55,101 $ (0.15) (8,533) 54,763 $ (0.16)
Effect of dilutive
securities(1) - - - - - - - - - - - - - - - - - -
--------- ------ ------- --------- ------ ------- --------- ------ -------
Diluted loss per
common share $ (48,040) 62,347 $ (0.77) $ (8,350) 55,101 $ (0.15) $ (8,533) 54,763 $ (0.16)
========= ====== ======= ========= ====== ======= ========= ====== =======
</TABLE>
(1) Dilutive Securities
As of December 31, 1999, 1998 and 1997, there were 2,308,000, 1,655,000 and
973,000 shares available for issue under granted stock options, respectively.
These options were not included in the computation of diluted loss per common
share as a loss was incurred in each of these years, and their inclusion would
be antidilutive. Hecla also has 2.3 million shares of convertible preferred
stock outstanding that, if converted, would be antidilutive, and were therefore
excluded from the determination of diluted loss per share. The 1999 calculation
also excludes 1,506,998 warrants to purchase common stock, as their exercise
would be antidilutive.
Note 14: Other Comprehensive Loss
Due to the availability of net operating losses, there is no tax effect
associated with any component of other comprehensive loss.
<PAGE> 111
The following table lists the beginning balance, yearly activity and ending
balance of each component of accumulated other comprehensive loss (in
thousands):
[CAPTION]
<TABLE>
Minimum Accumulated
Foreign Unrealized Pension Other
Currency Gains (Losses) Liability Comprehensive
Items on Securities Adjustment Loss
--------- ------------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 $ (4,898) $ (32) $ - - $ (4,930)
1997 change - - (31) - - (31)
-------- ------- ------- --------
Balance December 31, 1997 (4,898) (63) - - (4,961)
1998 change - - (19) (289) (308)
-------- ------- ------- --------
Balance December 31, 1998 (4,898) (82) (289) (5,269)
1999 change - - 109 289 398
-------- ------- ------- --------
Balance December 31, 1999 $ (4,898) $ 27 $ - - $ (4,871)
======== ======= ======= ========
</TABLE>
Note 15: Subsequent Events
On March 21, 2000, Hecla received a commitment letter from a bank to
provide for a $55.0 million term loan facility due one year after funding.
Proceeds from the term loan facility will be utilized to repay amounts
outstanding under the current Bank Agreement, the revenue bonds and the
subordinated debt, as well as for general corporate purposes. The terms of the
facility include certain collateral provisions, including the pledging of the
common stock of certain of Hecla's subsidiaries and providing the lender a
security interest in certain other assets of Hecla. Interest rates are to be
based on LIBOR plus a margin of 2.25%. Funding pursuant to the commitment is
expected to occur during April 2000 upon satisfactory completion of legal
documentation.
On March 15, 2000, Hecla completed a sales transaction of its MWCA -
Mountain West Products division. The proceeds from the sales transaction were
used to pay down amounts outstanding under Hecla's current Bank Agreement.
Based upon Hecla's estimate of metals prices and metals production for
2000, Hecla believes that its operating cash flows, the cash proceeds from the
sale of MWCA - Mountain West Products division, and the proceeds from the new
credit facility will be adequate to fund the combined total of anticipated
minimum capital expenditures, idle property expenditures, exploration
expenditures, and Hecla's preferred dividend requirement. In 2000, Hecla will
continue to pursue the sale of the MWCA - Colorado Aggregate division which it
anticipates closing in the first half of 2000, consider other asset sales, and
actively pursue equity offerings in order to provide funds for possible
expansion projects, acquisitions, or other cash requirements.
<PAGE> 112
Hecla Mining Company and Wholly Owned Subsidiaries
Form 10-K - December 31, 1999
Index to Exhibits
Number and Description of Exhibits
----------------------------------
3.1(a) Certificate of Incorporation of the
Registrant as amended to date.(2)
3.1(b) Certificate of Amendment of Certificate
of Incorporation of the Registrant,
dated as of May 16, 1991.(2)
3.2 By-Laws of the Registrant as amended
to date.(2)
4.1(a) Certificate of Designations, Preferences
and Rights of Series A Junior
Participating Preferred Stock of the
Registrant.(2)
4.1(b) Certificate of Designations, Preferences
and Rights of Series B Cumulative Convertible
Preferred Stock of the Registrant.(2)
4.2 Rights Agreement dated as of May 10, 1996
between Hecla Mining Company and American
Stock Transfer & Trust Company, which
includes the form of Rights Certificate of
Designation setting forth the terms of the
Series A Junior Participating Preferred
Stock of Hecla Mining Company as Exhibit A
and the summary of Rights to Purchase
Preferred Shares as Exhibit B.(2)
10.1(a) Credit Agreement dated as of May 7, 1999,
among Registrant and Certain Subsidiaries
and NationsBank, N.A., as Agent, and
Certain Lenders.(2)
<PAGE> 113
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
10.1(b) First Amendment to Restated Credit Agreement
dated as of June 25, 1999 among NationsBank,
N.A. and Registrant.(2)
10.1(c) Second Amendment to Restated Credit Agreement
dated as of August 31, 1999 among NationsBank,
N.A. and Registrant.(2) Attached
10.1(d) Third Amendment to Restated Credit Agreement
dated as of December 20, 1999 among NationsBank,
N.A. and Registrant.(2) Attached
10.1(e) Fourth Amendment to Restated Credit Agreement
dated as of December 30, 1999 among NationsBank,
N.A. and Registrant.(2) Attached
10.2 Employment agreement dated November 10,
1989 between Hecla Mining Company and
Arthur Brown. (Registrant has substantially
identical agreements with each of Messrs.
William B. Booth, J. Gary Childress, Roger A.
Kauffman, Jon T. Langstaff, John P. Stilwell,
and Michael B. White. Such substantially
identical agreements are not included as
separate Exhibits.)(1,2)
10.3(a) Form of Executive Deferral Plan Master
Document, as amended, effective November 13,
1998.(1,2)
10.3(b) Form of Director Deferral Plan Master
Plan Document effective January 1, 1995.(1,2)
10.4(a) 1987 Nonstatutory Stock Option Plan of the
Registrant.(1,2)
10.4(b) Hecla Mining Company 1995 Stock Incentive
Plan.(1,2)
<PAGE> 114
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
10.4(c) Hecla Mining Company Stock Plan for Non-
employee Directors.(1,2)
10.5(a) Hecla Mining Company Retirement Plan for
Employees and Supplemental Retirement and
Death Benefit Plan.(1,2)
10.5(b) Supplemental Excess Retirement Master
Plan Document.(1,2)
10.5(c) Hecla Mining Company Nonqualified Plans
Master Trust Agreement.(1,2)
10.6 Form of Indemnification Agreement dated
May 27, 1987 between Hecla Mining Company
and each of its Directors and Officers.(1,2)
10.7 Summary of Short-term Performance Payment
Plan.(1,2)
10.8(a) Amended and Restated Golden Eagle Earn-In
Agreement between Santa Fe Pacific Gold
Corporation and Hecla Mining Company dated
as of September 6, 1996.(2)
10.8(b) Golden Eagle Operating Agreement between Santa
Fe Pacific Gold Corporation and Hecla Mining
Company dated as of September 6, 1996.(2)
10.9 Limited Liability Company Agreement of the
Rosebud Mining Company, L.L.C. among Santa
Fe Pacific Gold Corporation and Hecla Mining
Company dated as of September 6, 1996.(2)
10.10 Restated Mining Venture Agreement among
Kennecott Greens Creek Mining Company,
Hecla Mining Company and CSX Alaska Mining
Inc. dated May 6, 1994.(2)
<PAGE> 115
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
10.11 Credit Agreement dated as of June 25, 1999 among
Monarch Resources Investments Limited as Borrower,
Monarch Minera Suramericana, C.A. as an additional
obligor and Standard Bank London Limited as
Collateral and Administrative Agent.(2)
10.12 Subordinated Loan Agreement dated as of June 25,
1999 among Hecla Mining Company as Borrower
and Standard Bank London Limited as Initial
Lender, Collateral and Administrative Agent.(2)
10.13 Subordination Agreement dated as of June 25, 1999
among NationsBank, N.A. as Senior Creditor,
Standard Bank London Limited as Subordinated
Creditor and Hecla Mining Company.(2)
11. Computation of weighted average number of
common shares outstanding. Attached
12. Statement of Computation of Ratio of Earnings
to Fixed Charges. Attached
21. List of subsidiaries of the Registrant. Attached
23.1 Consent of PricewaterhouseCoopers LLP to
incorporation by reference of their report
dated February 4, 2000, except for Note 15,
as to which the date is March 21, 2000,
on the Consolidated Financial Statements
of the Registrant in the Registrant's
Registration Statements on Form S-3, No.
33-72832, and No. 33-59659, Form S-8,
No. 33-7833, No. 33-41833, No. 33-14758,
No. 33-40691, No. 33-60095 and No.
33-60099.(2) Attached
<PAGE> 116
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
27. Financial Data Schedule Attached
- -------------------------
1. Indicates a management contract or compensatory plan or arrangement.
2. These exhibits were filed in SEC File No. 1-8491 as indicated on the
following page and are incorporated herein by this reference thereto.
<PAGE> 117
Corresponding Exhibit in Annual Report on
Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K, Proxy Statement
Exhibit in or Registration Statement, as Indicated Below;
this Report All References are to SEC File No. 1-8491.
- ----------- ------------------------------------------
3.1(a) & (b) 3.1 (10-K for 1987)
3.2 2 (Current Report on Form 8-K dated
November 13, 1998)
4.1(a) & (b) 4.1(d)(e) and 4.5 (10-Q for June 30, 1993)
4.2 4 (Current Report on Form 8-K dated
May 10, 1996)
10.1(a) 10.2 (10-Q for June 30, 1999)
10.1(b) 10.2(a) (10-Q for June 30, 1999)
10.2 10.2(b) (10-K for 1989)
10.3(a) 10.3(a) (10-K for 1998)
10.3(b) 10.3(b) (10-K for 1994)
10.4(a) B (Proxy Statement dated March 20, 1987)
10.4(b) A (Proxy Statement dated March 27, 1995)
10.4(c) B (Proxy Statement dated March 27, 1995)
10.5(a) 10.11(a) (10-K for 1985)
10.5(b) 10.5(b) (10-K for 1994)
10.5(c) 10.5(c) (10-K for 1994)
10.6 10.15 (10-K for 1987)
10.7 10.7 (10-K for 1994)
10.8(a) 10.11(a) (10-Q for September 30, 1996)
10.8(b) 10.11(b) (10-Q for September 30, 1996)
10.9 10.12 (10-Q for September 30, 1996)
10.10 A (10-Q for June 30, 1994)
10.11 10.3 (10-Q for June 30, 1999)
10.12 10.4 (10-Q for June 30, 1999)
10.13 10.5 (10Q for June 30, 1999)
<PAGE> 1
Exhibit 10.1(c)
SECOND AMENDMENT TO RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO RESTATED CREDIT AGREEMENT (herein
called the "Amendment") made as of August 31, 1999 by and among
Hecla Mining Company, a Delaware corporation ("Borrower"), the
undersigned subsidiary guarantors ("Subsidiary Guarantors"), Bank
of America, N.A., f/k/a Bank of America National Trust and
Savings Association, successor by merger to Bank of America,
N.A., f/k/a NationsBank, N.A., individually and as agent
("Agent"), and the Lenders, including Agent, party to the
Original Agreement ("Lenders"), defined below.
W I T N E S S E T H:
WHEREAS, Borrower, Subsidiary Guarantors, Agent and Lenders
entered into that certain Restated Credit Agreement dated as of
May 7, 1999 (as amended, supplemented, or restated, the "Original
Agreement") for the purpose and consideration therein expressed,
whereby Lenders became obligated to make loans to Borrower as
therein provided; and
WHEREAS, Borrower, Subsidiary Guarantors, Agent and Lenders
desire to amend the Original Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement, in consideration of the loans which may
hereafter be made by Lenders to Borrower, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as
follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise
expressly defined herein, the terms defined in the Original
Agreement shall have the same meanings whenever used in this
Amendment.
Section 1.2. Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this
Amendment shall have the meanings assigned to them in this
Section 1.2.
"Amendment" means this Second Amendment to Restated
Credit Agreement.
"Credit Agreement" means the Original Agreement as
amended hereby.
<PAGE> 2
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms. The definitions of "Base Rate
Margin", "Fixed Rate Margin", and "MWCA Triggering Event" in
Section 1.1 of the Original Agreement are hereby amended in their
entirety to read as follows:
" 'Base Rate Margin' means, on each day:
Facility Usage Base Rate Margin
less than or equal to twenty- 15 Basis Points (0.15%) per annum
five percent (25%) of the
Borrowing Base
less than or equal to fifty 35 Basis Points (0.35%) per annum
percent (50%) but greater than
twenty-five percent (25%) of
the Borrowing Base
less than or equal to seventy- 80 Basis Points (0.80%) per annum
five percent (75%) but greater
than fifty percent (50%) of
the Borrowing Base
greater than seventy-five 100 Basis Points (1.0%) per annum
percent of the Borrowing Base
(75%)
provided that the Base Rate Margin for all percentages of
Facility Usage shall be increased by Fifty Basis Points (0.5%) if
Borrower shall not have received the Minimum Net Proceeds on or
prior to November 30, 1999 and such increase shall be effective
from September 1, 1999 and shall remain in effect until such time
as Borrower shall have received the Minimum Net Proceeds."
<PAGE> 3
" 'Fixed Rate Margin' means, on each day:
Facility Usage Fixed Rate Margin
less than or equal to twenty- 140 Basis Points (1.4%) per annum
five percent (25%) of the
Borrowing Base
less than or equal to fifty 160 Basis Points (1.6%) per annum
percent (50%) but greater than
twenty-five percent (25%) of
the Borrowing Base
less than or equal to seventy- 205 Five Basis Points (2.05%) per annum
five percent (75%) but greater
than fifty percent (50%) of
the Borrowing Base
greater than seventy-five 225 Basis Points (2.25%) per annum
percent (75%) of the Borrowing
Base
provided that the Fixed Rate Margin for all percentages of
Facility Usage shall be increased by Fifty Basis Points (0.5%) if
Borrower shall not have received the Minimum Net Proceeds on or
prior to November 30, 1999 and such increase shall be effective
from September 1, 1999 and shall remain in effect until such time
as Borrower shall have received the Minimum Net Proceeds."
" 'MWCA Triggering Event' means the first to occur of any of
the following (a) the failure by Borrower to sell all of the
capital stock or all or substantially all of the assets of MWCA,
Inc. by November 30, 1999 or (b) the occurrence of a Default or
Event of Default hereunder."
Section 2.2. Agreement to Deliver Security Documents; Sale
of MWCA, Inc. Section 6.16(c) of the Original Agreement is
hereby amended in its entirety to read as follows:
"(c) MWCA, Inc. has delivered to Agent Security
Documents pursuant to Section 6.16(a) above. Agent has
agreed to hold such Security Documents in anticipation of
the sale described in Section 6.16(b) and to record the
related financing statements (i) only if Borrower fails to
sell all of the capital stock or all or substantially all of
the assets of MWCA, Inc. by November 30, 1999 or (ii) if
earlier, after the occurrence of a Default hereunder."
<PAGE> 4
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become
effective as of the date first above written when and only when:
(a) Agent shall have received all of the following, at
Agent's office, duly executed and delivered and in form and
substance satisfactory to Agent, all of the following:
(i) the Amendment;
(ii) a certificate of the Secretary of Borrower and
each Subsidiary Guarantor dated the date of this Amendment
certifying: (i) that resolutions adopted by the Board of
Directors of such Person authorize the execution, delivery
and performance of this Amendment by such Person; (ii) the
names and true signatures of the officers of such Persons
authorized to sign this Amendment; and (iii) that all of the
representations and warranties set forth in Article IV
hereof are true and correct at and as of the time of such
effectiveness; and
(iii) such other supporting documents as Agent may
reasonably request.
(b) Borrower shall have paid, in connection with such Loan
Documents, all recording, handling, amendment and other fees
required to be paid to Agent pursuant to any Loan Documents.
(c) Borrower shall have paid, in connection with such Loan
Documents, all other fees and reimbursements to be paid to Agent
pursuant to any Loan Documents, or otherwise due Agent and
including fees and disbursements of Agent's attorneys.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower.
In order to induce each Lender to enter into this Amendment,
Borrower represents and warrants to each Lender that:
(a) The representations and warranties contained in
subsections of Section 5.1 of the Original Agreement are true and
correct at and as of the time of the effectiveness hereof.
(b) Borrower is duly authorized to execute and deliver this
Amendment and is and will continue to be duly authorized to
borrow monies and to perform its obligations under the Credit
Agreement. Borrower has duly taken all corporate action necessary
to authorize the execution and delivery of this Amendment and to
authorize the performance of the obligations of Borrower
hereunder.
<PAGE> 5
(c) The execution and delivery by Borrower of this
Amendment, the performance by Borrower of its obligations
hereunder and the consummation of the transactions contemplated
hereby do not and will not conflict with any provision of law,
statute, rule or regulation or of the certificate of
incorporation and bylaws of Borrower, or of any material
agreement, judgment, license, order or permit applicable to or
binding upon Borrower, or result in the creation of any lien,
charge or encumbrance upon any assets or properties of Borrower.
Except for those which have been obtained, no consent, approval,
authorization or order of any court or governmental authority or
third party is required in connection with the execution and
delivery by Borrower of this Amendment or to consummate the
transactions contemplated hereby.
(d) When duly executed and delivered, each of this
Amendment and the Credit Agreement will be a legal and binding
obligation of Borrower, enforceable in accordance with its terms,
except as limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors'
rights and by equitable principles of general application.
(e) The audited annual Consolidated financial statements of
Borrower dated as of December 31, 1998 and the unaudited
quarterly Consolidated financial statements of Borrower dated as
of June 30, 1999 fairly present the Consolidated financial
position at such dates and the Consolidated statement of
operations and the changes in Consolidated financial position for
the periods ending on such dates for Borrower. Copies of such
financial statements have heretofore been delivered to each
Lender. Since such dates no material adverse change has occurred
in the financial condition or businesses or in the Consolidated
financial condition or businesses of Borrower.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements. The Original
Agreement as hereby amended is hereby ratified and confirmed in
all respects. Any reference to the Credit Agreement in any Loan
Document shall be deemed to be a reference to the Original
Agreement as hereby amended. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or
remedy of Lenders under the Credit Agreement, the Notes, or any
other Loan Document nor constitute a waiver of any provision of
the Credit Agreement, the Notes or any other Loan Document.
<PAGE> 6
Section 5.2. Survival of Agreements. All representations,
warranties, covenants and agreements of Borrower herein shall
survive the execution and delivery of this Amendment and the
performance hereof, including without limitation the making or
granting of the Loans, and shall further survive until all of the
Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by any
Related Person hereunder or under the Credit Agreement to any
Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under
this Amendment and under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan
Document, and all provisions in the Credit Agreement pertaining
to Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be
governed by and construed in accordance the laws of the State of
Texas and any applicable laws of the United States of America in
all respects, including construction, validity and performance.
Section 5.5. Counterparts; fax. This Amendment may be
separately executed in counterparts and by the different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to constitute one and the same Amendment. This
Amendment may be validly executed and delivered by facsimile or
other electronic transmission.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES.
[The remainder of this page has been intentionally left blank.]
<PAGE> 7
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
BORROWER: HECLA MINING COMPANY
By: /s/ John P. Stilwell
---------------------------
John P. Stilwell
Vice President and Chief
Financial Officer
SUBSIDIARY GUARANTORS: MWCA, INC.
By: s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
KENTUCKY-TENNESSEE CLAY COMPANY
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
K-T FELDSPAR CORPORATION
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
<PAGE> 8
AGENT AND LENDER: BANK OF AMERICA, N.A.
By: /s/ Denise A. Smith
---------------------------
Name: Denise A. Smith
Title: Managing Director
LENDERS: FIRST SECURITY BANK, N.A.
By: /s/ Vicki Riga
---------------------------
Name: Vicki Riga
Title: Vice President
<PAGE> 1
Exhibit 10.1(d)
EXECUTION
THIRD AMENDMENT TO RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO RESTATED CREDIT AGREEMENT (herein
called the "Amendment") made as of December 20, 1999 by and among
Hecla Mining Company, a Delaware corporation ("Borrower"), the
undersigned subsidiary guarantors ("Subsidiary Guarantors"), Bank
of America, N.A., f/k/a Bank of America National Trust and
Savings Association, successor by merger to Bank of America,
N.A., f/k/a NationsBank, N.A., individually and as agent
("Agent"), and the Lenders, including Agent, party to the
Original Agreement ("Lenders"), defined below.
W I T N E S S E T H:
WHEREAS, Borrower, Subsidiary Guarantors, Agent and Lenders
entered into that certain Restated Credit Agreement dated as of
May 7, 1999 (as amended, supplemented, or restated, the "Original
Agreement") for the purpose and consideration therein expressed,
whereby Lenders became obligated to make loans to Borrower as
therein provided; and
WHEREAS, Borrower, Subsidiary Guarantors, Agent and Lenders
desire to amend the Original Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement, in consideration of the loans which may
hereafter be made by Lenders to Borrower, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as
follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise
expressly defined herein, the terms defined in the Original
Agreement shall have the same meanings whenever used in this
Amendment.
Section 1.2. Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this
Amendment shall have the meanings assigned to them in this
Section 1.2.
<PAGE> 2
"Amendment" means this Third Amendment to Restated
Credit Agreement.
"Amendment Documents" means (i) this Amendment, (ii)
that certain Second Amendment to LLC Pledge Agreement of
even date herewith between Borrower and Agent, (iii) that
certain Security Agreement of even date herewith by Mountain
West, L.L.C. in favor of Agent, as secured party, and (iv)
all financing statements and other instruments and
certificates relating to the foregoing.
"Credit Agreement" means the Original Agreement as
amended hereby.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms.
(a) Section 1.1 of the Original Agreement is hereby amended
to delete the definitions of "Eligible MWCA Inventory" and
"Eligible Other Inventory".
(b) The definitions of "Eligible Inventory", "Minimum Net
Proceeds", "MWCA Triggering Event", and "Subsidiary Guarantor" in
Section 1.1 of the Original Agreement are hereby amended in their
entirety to read as follows:
" 'Eligible Inventory' means any Product which is owned by
Borrower or any Subsidiary Guarantor (excluding each of MWCA,
Inc. and Mountain West, L.L.C. following the sale of all or
substantially all of the assets or all of the outstanding capital
stock thereof) and which:
(a) is located at a mine or a processing plant owned by
Borrower or any Subsidiary Guarantor (excluding each of MWCA,
Inc. and Mountain West, L.L.C. following the sale of all or
substantially all of the assets or all of the outstanding capital
stock thereof) or is in transit to a smelter, mill or refinery
owned by any such Persons; and
(b) such mine or processing plant, or such smelter, mill or
refinery:
(i) IS LOCATED IN THE UNITED STATES in a state in
respect of which Agent has received an opinion of counsel,
in form and substance satisfactory to Agent, to the effect
that the Product located in such state is subject to an
enforceable and duly perfected security interest in favor of
Agent or, if in transit, will be located in such a state
immediately upon reaching its destination, or
<PAGE> 3
(ii) IS NOT LOCATED IN THE UNITED STATES, but the
aggregate amount of all such Product included in the
Borrowing Base shall not exceed twenty percent (20%) of all
Eligible Inventory; and
(c) if such Product is located in the United States, such
Product is subject to an enforceable security interest in favor
of Agent which is duly perfected and of first priority, or if in
transit, will be duly perfected and of first priority immediately
upon reaching its destination; and
(d) such Product is fully and adequately insured pursuant
to Section 6.8 with Agent named as loss payee as its interests
may appear; and
(e) such Product is categorized on the Borrower's
Consolidated balance sheet as 'Products on hand and in Transit;
Concentrates and Metals in transit, and Industrial mineral
product.' "
" 'Minimum Net Proceeds' means (x) net proceeds from the
sale of assets, capital stock, or ownership interests of MWCA,
Inc. and Mountain West, L.L.C. plus (y) Net Proceeds from New
Equity in an amount equal to or greater than $25,000,000."
" 'MWCA Triggering Event' means the first to occur of any of
the following (a) the failure by Borrower to sell all of the
capital stock or all or substantially all of the assets of MWCA,
Inc. by December 31, 1999 or (b) the occurrence of a Default or
Event of Default hereunder."
" 'Subsidiary Guarantor' means each of MWCA, Inc., Mountain
West, L.L.C., Kentucky-Tennessee Clay Company, K-T Feldspar
Corporation, and any other Subsidiary who has guaranteed some or
all of the Obligations pursuant to Section 6.14."
Section 2.2. Agreement to Deliver Security Documents; Sale
of MWCA, Inc. Section 6.16(c) of the Original Agreement is
hereby amended in its entirety to read as follows:
"(c) MWCA, Inc. has delivered to Agent Security
Documents pursuant to Section 6.16(a) above. Agent has
agreed to hold such Security Documents in anticipation of
the sale described in Section 6.16(b) and to record the
related financing statements (i) only if Borrower fails to
sell all of the capital stock or all or substantially all of
the assets of MWCA, Inc. by December 31, 1999 or (ii) if
earlier, after the occurrence of a Default hereunder."
<PAGE> 4
Section 2.3. Guaranty. Mountain West, L.L.C. hereby (i)
agrees to irrevocably, absolutely, and unconditionally guarantee
to Lenders the prompt, complete, and full payment when due, and
no matter how the same shall become due, of all Obligations
pursuant to the terms set forth in Article VIIA of the Credit
Agreement, (ii) acknowledges and agrees that by becoming a
Subsidiary Guarantor hereunder, it agrees to become bound by all
terms and provisions of the Credit Agreement relating to
Subsidiary Guarantors, including the Guaranty provisions of
Article VIIA of the Credit Agreement, (iii) that it has received
a copy of the Credit Agreement prior to its execution of this
Amendment, and (iv) that it has received ample time and
opportunity to review the provisions of Article VIIA of the
Credit Agreement.
Section 2.4. Security Schedule. Schedule 2 to the
Original Agreement is hereby amended in its entirety to read as
set forth in Exhibit A attached hereto.
Section 2.5. Borrower's Subsidiaries. Schedule 3 to the
Original Agreement is hereby amended in its entirety to read as
set forth in Exhibit B attached hereto.
Limited Consent
Section 2.6. MWCA, Inc. Borrower has informed Agent that
it intends to transfer or assign to Mountain West, L.L.C. certain
real and personal property owned by MWCA, Inc. that is located in
the States of Idaho, Montana, and South Dakota (the "Transfer
Property" and the "Transfer"). Subject to the terms and
conditions set forth in this Amendment, upon receipt of written
notification to Agent at least five (5) Business Days prior to
the consummation of the Transfer, Agent and each Lender consent
to the consummation of the Transfer; provided that (i) the
Transfer Property transferred or assigned pursuant to the
Transfer shall be subject to all prior liens and security
interests of Agent and Lenders in and to the Transfer Property
which arise under any Loan Document, (ii) Borrower shall provide
to Agent copies of the instruments (recorded, as appropriate)
conveying the Transfer Property to Mountain West, L.L.C. and
(iii) all conditions set forth in Article III below have been
satisfied.
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become
effective as of the date first above written when and only when:
(a) Agent shall have received all of the following, at
Agent's office, duly executed and delivered and in form and
substance satisfactory to Agent, all of the following:
<PAGE> 5
(i) the Amendment;
(ii) a certificate of the Secretary or Assistant
Secretary of Borrower and each Subsidiary Guarantor dated
the date of this Amendment certifying: (i) that resolutions
adopted by the Board of Directors of such Person authorize
the execution, delivery and performance of this Amendment
and the other Amendment Documents by such Person; (ii) the
names and true signatures of the officers of such Persons
authorized to sign this Amendment and the other Amendment
Documents; and (iii) that all of the representations and
warranties set forth in Article IV hereof are true and
correct at and as of the time of such effectiveness;
(iii) a copy of the Articles of Organization of
Mountain West, L.L.C. certified by the Secretary of State of
Idaho;
(iv) each Amendment Document;
(v) a favorable opinion of Nathaniel K. Adams, Esq.,
Corporate Counsel and Assistant Secretary of the Borrower,
substantially in the form set forth in Exhibit C; and
(vi) such other supporting documents as Agent may
reasonably request.
(b) Borrower shall have paid, in connection with such Loan
Documents, all recording, handling, amendment and other fees
required to be paid to Agent pursuant to any Loan Documents.
(c) Borrower shall have paid, in connection with such Loan
Documents, all other fees and reimbursements to be paid to Agent
pursuant to any Loan Documents, or otherwise due Agent and
including fees and disbursements of Agent's attorneys.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower.
In order to induce each Lender to enter into this Amendment,
Borrower represents and warrants to each Lender that:
(a) The representations and warranties contained in
subsections of Section 5.1 of the Original Agreement are true and
correct at and as of the time of the effectiveness hereof.
<PAGE> 6
(b) Borrower and each Subsidiary Guarantor are duly
authorized to execute and deliver this Amendment and the other
Amendment Documents and are and will continue to be duly
authorized to borrow monies and to perform their respective
obligations under the Credit Agreement. Borrower and each
Subsidiary Guarantor have duly taken all corporate or limited
liability company action necessary to authorize the execution and
delivery of this Amendment and the other Amendment Documents and
to authorize the performance of their respective obligations
hereunder and thereunder.
(c) The execution and delivery by Borrower and each
Subsidiary Guarantor of this Amendment and the other Amendment
Documents, the performance by Borrower and each Subsidiary
Guarantor of their respective obligations hereunder and
thereunder and the consummation of the transactions contemplated
hereby and thereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the
certificate of incorporation, bylaws, or other organizational
documents of Borrower or any Subsidiary Guarantor, or of any
material agreement, judgment, license, order or permit applicable
to or binding upon Borrower or any Subsidiary Guarantor, or
result in the creation of any lien, charge or encumbrance upon
any assets or properties of Borrower or any Subsidiary Guarantor.
Except for those which have been obtained, no consent, approval,
authorization or order of any court or governmental authority or
third party is required in connection with the execution and
delivery by Borrower or any Subsidiary Guarantor of this
Amendment and the other Amendment Documents or to consummate the
transactions contemplated hereby and thereby.
(d) When duly executed and delivered, each of this
Amendment, the other Amendment Documents, and the Credit
Agreement will be a legal and binding obligation of Borrower and
each Subsidiary Guarantor, enforceable in accordance with its
terms, except as limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of
creditors' rights and by equitable principles of general
application.
(e) The audited annual Consolidated financial statements of
Borrower dated as of December 31, 1998 and the unaudited
quarterly Consolidated financial statements of Borrower dated as
of September 30, 1999 fairly present the Consolidated financial
position at such dates and the Consolidated statement of
operations and the changes in Consolidated financial position for
the periods ending on such dates for Borrower. Copies of such
financial statements have heretofore been delivered to each
Lender. Since such dates no material adverse change has occurred
in the financial condition or businesses or in the Consolidated
financial condition or businesses of Borrower.
(f) No operating agreement (or other similar limited
liability company agreement) has been consented to, adopted or
approved by or on behalf of Mountain West, L.L.C.
<PAGE> 7
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements. The Original
Agreement as hereby amended is hereby ratified and confirmed in
all respects. The Loan Documents, as they may be amended or
affected by the various Amendment Documents, are hereby ratified
and confirmed in all respects. Any reference to the Credit
Agreement in any Loan Document shall be deemed to be a reference
to the Original Agreement as hereby amended. The execution,
delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right,
power or remedy of Lenders under the Credit Agreement, the Notes,
or any other Loan Document nor constitute a waiver of any
provision of the Credit Agreement, the Notes or any other Loan
Document.
Section 5.2. Survival of Agreements. All representations,
warranties, covenants and agreements of Borrower herein shall
survive the execution and delivery of this Amendment and the
performance hereof, including without limitation the making or
granting of the Loans, and shall further survive until all of the
Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by any
Related Person hereunder or under the Credit Agreement to any
Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under
this Amendment and under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan
Document, and all provisions in the Credit Agreement pertaining
to Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be
governed by and construed in accordance the laws of the State of
Texas and any applicable laws of the United States of America in
all respects, including construction, validity and performance.
Section 5.5. Counterparts; fax. This Amendment may be
separately executed in counterparts and by the different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to constitute one and the same Amendment. This
Amendment may be validly executed and delivered by facsimile or
other electronic transmission.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES.
[The remainder of this page has been intentionally left blank.]
<PAGE> 8
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
BORROWER: HECLA MINING COMPANY
By: /s/ John P. Stilwell
---------------------------
John P. Stilwell
Vice President and Chief
Financial Officer
SUBSIDIARY GUARANTORS: MWCA, INC.
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
KENTUCKY-TENNESSEE CLAY COMPANY
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
K-T FELDSPAR CORPORATION
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
MOUNTAIN WEST, L.L.C.
By: Hecla Mining Company, as
sole member
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President -
Industrial Minerals
<PAGE> 9
AGENT AND LENDER: BANK OF AMERICA, N.A.
By: /s/ Tracey Barclay
---------------------------
Name: Tracey Barclay
Title: Senior Vice President
LENDERS: FIRST SECURITY BANK, N.A.
By: /s/ Vicki Riga
---------------------------
Name: Vicki Riga
Title: Vice President
<PAGE> 1
Exhibit 10.1(e)
FOURTH AMENDMENT TO RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO RESTATED CREDIT AGREEMENT (herein
called the "Amendment") made as of December 30, 1999 by and among
Hecla Mining Company, a Delaware corporation ("Borrower"), the
undersigned subsidiary guarantors ("Subsidiary Guarantors"), Bank
of America, N.A., f/k/a Bank of America National Trust and
Savings Association, successor by merger to Bank of America,
N.A., f/k/a NationsBank, N.A., individually and as agent
("Agent"), and the Lenders, including Agent, party to the
Original Agreement ("Lenders"), defined below.
W I T N E S S E T H:
WHEREAS, Borrower, Subsidiary Guarantors, Agent and Lenders
entered into that certain Restated Credit Agreement dated as of
May 7, 1999 (as amended, supplemented, or restated, the "Original
Agreement") for the purpose and consideration therein expressed,
whereby Lenders became obligated to make loans to Borrower as
therein provided; and
WHEREAS, Borrower, Subsidiary Guarantors, Agent and Lenders
desire to amend the Original Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement, in consideration of the loans which may
hereafter be made by Lenders to Borrower, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as
follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise
expressly defined herein, the terms defined in the Original
Agreement shall have the same meanings whenever used in this
Amendment.
Section 1.2. Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this
Amendment shall have the meanings assigned to them in this
Section 1.2.
"Amendment" means this Fourth Amendment to Restated
Credit Agreement.
"Credit Agreement" means the Original Agreement as
amended hereby.
<PAGE> 2
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Tangible Net Worth. Section 7.13 of the
Original Agreement is hereby amended in its entirety to read as
follows:
"Section 7.13. Tangible Net Worth. Borrower's
Consolidated Tangible Net Worth (i) as of the end of the
Fiscal Quarters ending on December 31, 1999 and March 31,
2000 will not be less than the amount of $127,000,000 and
(ii) as of the end of any Fiscal Quarter ending on or after
June 30, 2000 will not be less than the sum of
(a) $137,000,000, plus (b) 50% of Borrower's Consolidated
net income earned during the period from January 1, 1999 to
the end of such Fiscal Quarter, if positive, or zero, if
negative, plus (c) 75% of the net proceeds from the issuance
of equity securities of Borrower after December 31, 1999, to
the end of such Fiscal Quarter.
As used in this subsection, the following terms shall have
the meanings set forth below:
(A) "Borrower's Consolidated Debt" means all
Consolidated liabilities and similar balance sheet items of
Borrower, together with all Funded Debt of any Related
Person.
(B) "Borrower's Consolidated Tangible Net Worth" means
the remainder of (x) all Consolidated assets of Borrower,
other than intangible assets (including without limitation
as intangible assets such assets as patents, copyrights,
licenses, franchises, goodwill, trade names, trade secrets
and leases other than oil, gas or mineral leases or leases
required to be capitalized under GAAP), minus (y) Borrower's
Consolidated liabilities."
Section 2.2. Events of Default. Section 8.2 of the
Original Agreement is hereby amended to add the following
subsection (o) thereto immediately following subsection (n)
thereof to read as follows:
"(o) Borrower fails to receive on or before April 30,
2000 proceeds from the issuance between January 1, 2000 and
April 30, 2000 of Borrower's capital stock, net of
reasonable out-of-pocket costs of issuance incurred by
Borrower, in an amount equal to or greater than $5,000,000."
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become
effective as of the date first above written when and only when:
<PAGE> 3
(a) Agent shall have received all of the following, at
Agent's office, duly executed and delivered and in form and
substance satisfactory to Agent, all of the following:
(i) the Amendment;
(ii) a certificate of the Secretary or Assistant
Secretary of Borrower and each Subsidiary Guarantor dated
the date of this Amendment certifying: (i) that resolutions
adopted by the Board of Directors of such Person authorize
the execution, delivery and performance of this Amendment by
such Person; (ii) the names and true signatures of the
officers of such Persons authorized to sign this Amendment;
and (iii) that all of the representations and warranties set
forth in Article IV hereof are true and correct at and as of
the time of such effectiveness;
(iii) such other supporting documents as Agent may
reasonably request.
(b) Borrower shall have paid, in connection with such Loan
Documents, all recording, handling, amendment and other fees
required to be paid to Agent pursuant to any Loan Documents.
(c) Borrower shall have paid, in connection with such Loan
Documents, all other fees and reimbursements to be paid to Agent
pursuant to any Loan Documents, or otherwise due Agent and
including fees and disbursements of Agent's attorneys.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower.
In order to induce each Lender to enter into this Amendment,
Borrower represents and warrants to each Lender that:
(a) The representations and warranties contained in
subsections of Section 5.1 of the Original Agreement are true and
correct at and as of the time of the effectiveness hereof.
(b) Borrower and each Subsidiary Guarantor are duly
authorized to execute and deliver this Amendment and are and will
continue to be duly authorized to borrow monies and to perform
their respective obligations under the Credit Agreement. Borrower
and each Subsidiary Guarantor have duly taken all corporate or
limited liability company action necessary to authorize the
execution and delivery of this Amendment and to authorize the
performance of their respective obligations hereunder and
thereunder.
<PAGE> 4
(c) The execution and delivery by Borrower and each
Subsidiary Guarantor of this Amendment, the performance by
Borrower and each Subsidiary Guarantor of their respective
obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby do not and will not
conflict with any provision of law, statute, rule or regulation
or of the certificate of incorporation, bylaws, or other
organizational documents of Borrower or any Subsidiary Guarantor,
or of any material agreement, judgment, license, order or permit
applicable to or binding upon Borrower or any Subsidiary
Guarantor, or result in the creation of any lien, charge or
encumbrance upon any assets or properties of Borrower or any
Subsidiary Guarantor. Except for those which have been obtained,
no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection
with the execution and delivery by Borrower or any Subsidiary
Guarantor of this Amendment or to consummate the transactions
contemplated hereby and thereby.
(d) When duly executed and delivered, each of this
Amendment and the Credit Agreement will be a legal and binding
obligation of Borrower and each Subsidiary Guarantor, enforceable
in accordance with its terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and by equitable principles of
general application.
(e) The audited annual Consolidated financial statements of
Borrower dated as of December 31, 1998 and the unaudited
quarterly Consolidated financial statements of Borrower dated as
of September 30, 1999 fairly present the Consolidated financial
position at such dates and the Consolidated statement of
operations and the changes in Consolidated financial position for
the periods ending on such dates for Borrower. Copies of such
financial statements have heretofore been delivered to each
Lender. Since such dates no material adverse change has occurred
in the financial condition or businesses or in the Consolidated
financial condition or businesses of Borrower.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements. The Original
Agreement as hereby amended is hereby ratified and confirmed in
all respects. The Loan Documents, as they may be amended or
affected hereby, are hereby ratified and confirmed in all
respects. Any reference to the Credit Agreement in any Loan
Document shall be deemed to be a reference to the Original
Agreement as hereby amended. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or
remedy of Lenders under the Credit Agreement, the Notes, or any
other Loan Document nor constitute a waiver of any provision of
the Credit Agreement, the Notes or any other Loan Document.
<PAGE> 5
Section 5.2. Survival of Agreements. All representations,
warranties, covenants and agreements of Borrower herein shall
survive the execution and delivery of this Amendment and the
performance hereof, including without limitation the making or
granting of the Loans, and shall further survive until all of the
Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by any
Related Person hereunder or under the Credit Agreement to any
Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under
this Amendment and under the Credit Agreement.
Section 5.3. Amendment Fee. In consideration of each
Lender's agreement to enter into this Amendment, Borrower will
pay to Agent for the account of each Lender an amendment fee in
the aggregate amount of $45,000, due and payable on the date
hereof.
Section 5.4. Loan Documents. This Amendment is a Loan
Document, and all provisions in the Credit Agreement pertaining
to Loan Documents apply hereto.
Section 5.5. Governing Law. This Amendment shall be
governed by and construed in accordance the laws of the State of
Texas and any applicable laws of the United States of America in
all respects, including construction, validity and performance.
Section 5.6. Counterparts; fax. This Amendment may be
separately executed in counterparts and by the different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to constitute one and the same Amendment. This
Amendment may be validly executed and delivered by facsimile or
other electronic transmission.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES.
[The remainder of this page has been intentionally left blank.]
<PAGE> 6
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
BORROWER: HECLA MINING COMPANY
By: /s/ John P. Stilwell
---------------------------
John P. Stilwell
Vice President and Chief
Financial Officer
SUBSIDIARY GUARANTORS: MWCA, INC.
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
KENTUCKY-TENNESSEE CLAY COMPANY
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
K-T FELDSPAR CORPORATION
By: /s/ J. Gary Childress
---------------------------
J. Gary Childress
Vice President
MOUNTAIN WEST, L.L.C.
By: Hecla Mining Company, as
sole member
By: /s/ J. Gary Childress
------------------------
J. Gary Childress
Vice President -
Industrial Minerals
<PAGE> 7
AGENT AND LENDER: BANK OF AMERICA, N.A.
By: /s/ Tracey S. Barclay
---------------------------
Tracey S. Barclay
Principal
LENDERS: FIRST SECURITY BANK, N.A.
By: /s/ Vicki Riga
---------------------------
Vicki Riga
Vice President
<PAGE> 1
FORM 10-K DECEMBER 31, 1999
COMMISSION FILE NO. 1-8491
EXHIBIT 11
HECLA MINING COMPANY AND SUBSIDIARIES
CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Shares of common stock issued at
beginning of period 55,166,728 55,156,324 51,199,324
The incremental effect of the issuance
of stock related to MRIL acquisition 3,908,479 - - - -
The incremental effect of the issuance of
new shares for cash, net of issuance costs 3,185,198 - - 3,620,833
The incremental effect of the issuance of
stock held by grantor trust 110,241 - - - -
The incremental effect of the issuance
of new shares under Stock Option and
Warrant Plans 38,041 7,238 5,084
---------- ---------- ----------
62,408,687 55,163,562 54,825,241
Less:
Weighted average treasury shares held 62,110 62,091 62,087
---------- ---------- ----------
Weighted average number of common shares
outstanding during the period 62,346,577 55,101,471 54,763,154
========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit 12
HECLA MINING COMPANY
FIXED CHARGE COVERAGE RATIO CALCULATION
For the years ended December 31, 1995, 1996, 1997, 1998 and 1999
and the three months ended December 31, 1998 and 1999
(In thousands, except ratios)
<TABLE>
<CAPTION>
4th Qtr 4th Qtr
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) before income
taxes and cumulative effect of
change in accounting principle $(101,410) $ (31,667) $ 1,414 $ (1,216) $ (38,890) $ (6,122) $ (7,348)
Add: Fixed Charges 10,551 11,651 11,126 11,384 13,987 2,876 3,864
Less: Capitalized Interest (1,516) (2,360) (806) (959) (19) (9) - -
--------- --------- --------- --------- --------- --------- ---------
Adjusted income (loss) before
income taxes and cumulative
effect of change in acounting
principle $ (92,375) $ (22,376) $ 11,734 $ 9,209 $ (24,922) $ (3,255) $ (3,484)
========= ========= ========= ========= ========= ========= =========
Fixed charges:
Preferred stock dividends $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 2,012 $ 2,012
Interest portion of rentals 541 543 614 73 1,302 10 333
Total interest costs 1,960 3,058 2,462 3,261 4,635 854 1,519
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 10,551 $ 11,651 $ 11,126 $ 11,384 $ 13,987 $ 2,876 $ 3,864
========= ========= ========= ========= ========= ========= =========
Fixed Charge Ratio (a) (a) 1.05 (a) (a) (a) (a)
Inadequate coverage $ 102,926 $ 34,027 $ - - $ 2,175 $ 38,909 $ 6,131 $ 7,348
========= ========= ========= ========= ========= ========= =========
Write-downs and other noncash charges:
DD&A(b) (mining activity) $ 23,462 $ 20,451 $ 21,009 $ 22,206 $ 23,417 $ 6,354 $ 6,069
DD&A(b) (corporate) 367 338 311 389 321 96 73
Provision for (benefit from)
closed operations 4,615 22,806 (724) 734 30,100 271 1,567
Reduction in carrying value of
mining properties 97,387 12,902 715 - - 4,577 - - 500
--------- --------- --------- --------- --------- --------- ---------
$ 125,831 $ 56,497 $ 21,311 $ 23,329 $ 58,415 $ 6,721 $ 8,209
========= ========= ========= ========= ========= ========= =========
(a) Earnings for period inadequate to cover fixed charges.
(b) "DD&A" is an abbreviation for "depreciation, depletion and amoritization."
</TABLE>
<PAGE> 1
FORM 10-K DECEMBER 31, 1999
COMMISSION FILE NO. 1-8491
EXHIBIT 21
HECLA MINING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
December 31, 1999
State or Country Percentage of
in Which Voting Securities
Organized Owned
---------------- -----------------
Equinox Resources, Inc. Nevada 100 (A)
Hecla Resources Investments Limited Bermuda 100 (A)
Kentucky-Tennessee Clay Company Delaware 100 (A)
K-T Clay de Mexico, S.A. de C.V. Mexico 100 (A)
K-T Feldspar Corporation North Carolina 100 (A)
Minera Hecla, S.A. de C.V. Mexico 100 (A)
MWCA, Inc. Idaho 100 (A)
(A) Included in the consolidated financial statements filed herewith.
<PAGE> 1
Exhibit 23.1
Form 10-K December 31, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Forms S-3 (File No. 33-72832 and No.
33-59659) and Forms S-8 (File No. 33-7833, 33-41833, 33-14758,
33-40691, 33-60095 and 33-60099) of Hecla Mining Company and
subsidiaries of our report dated February 4, 2000, except for
Note 15, as to which the date is March 21, 2000, relating to the
financial statements which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
March 24, 2000
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